Sales illustrations may be provided for certain types of products from insurance companies. Rules and guidelines will vary according to type of illustration (guaranteed, hypothetical, with or without loans, etc.) and the type of product being illustrated (term life, whole life, universal life, variable life, immediate or deferred annuity, fixed or variable annuity, etc.).
General Guidelines for Sales Illustrations
- When presenting a hypothetical illustration, inform the client that the illustration is intended to show how the policy would work under different assumptions. It is improper to present a hypothetical illustration in such a way as to predict results or lead a client to expect such results. Explain that the results cannot be predicted because the underlying non-guaranteed assumptions will vary over time.
- Never guaranteed rates, nonguaranteed charges, or hypothetical performance or assumptions. Don’t suggest or imply that they will, in fact, be achieved even though not guaranteed.
- Never alter, modify, mark on, or remove pages from illustrations.
- Use only insurance company approved illustrations. These include illustrations generated or provided by the insurance company at their home office or generated by you through their software tool(s). If you generate the illustration, be certain to produce all the required parts of the program.
- It’s good practice to keep a copy of any presentation you present to the client.
Guidelines for Traditional Life Insurance
Most state insurance departments have adopted National Association of Insurance Commissioners (NAIC) Model Life Insurance Illustration Regulation, which applies to illustrations of traditional (non-variable) life insurance. Many companies apply the standards and procedures required by this Model regulation nationally, even in states where it is not yet effective.
- The regulation requires each insurance company to declare each product as either one to be sold with an illustration or one for which illustrations are forbidden. Make certain you follow each insurance company’s designations for each product that you sell.
- If you’re offering a policy that is not to be illustrated, then any use of illustrations is strictly prohibited. You must not provide the client with any depiction, advertisement, projection, or table that contains any non-guaranteed element. Example you must not present a client with a projection or table of future non-guaranteed premium rates.
- If you’re offering a policy, an insurance company has declared must be illustrated, then you and the insurance company must comply with various requirements, including:
- The rates used in the illustration must meet strict actuarial standards and testing.
- At time of application, you must provide an illustration of the policy as applied for. The client must sign the illustration, and you must leave a copy with the client, subject to certain conditions.
- If the policy ultimately is issued other than as applied for, a new conforming illustration must be delivered with the policy. Special requirements exist for annual policy reports and requests for in-force illustrations.
Guidelines for Sales Illustrations for Deferred Annuities
Fixed annuity illustrations can be based upon a non-guaranteed interest rate that shall not be greater than that currently being credited by the insurance company. The illustration must likewise set forth with equal prominence a comparable illustration based upon the policy’s minimum guaranteed interest rate. All illustrations containing a rate to be earned are required to reflect the deduction of all limitations and conditions, such as surrender charges and policy or administrative fees, which affect the rate of return. These limitations and conditions must also be disclosed prominently. Currently state rules and insurance company practices vary widely for sales illustrations of fixed annuities. Make certain you understand the rules and requirements of the insurance companies you do business with.