What Is In Force Life Insurance?
Life insurance policies are often purchased with the expectation that they will remain in force until maturity without any changes necessary. However, policies can stumble if not monitored and reviewed periodically. An in-force illustration is the only way to gauge the potential future performance of a policy and determine if changes are needed to avoid problems.
Components of a Life Insurance Policy
Permanent life insurance policies with cash value components include whole life, universal life, variable life, and indexed life insurance. A policy’s performance is based on three basic components:
|Earnings||The interest rate earned on the policy’s cash value|
|Cost of insurance||The cost of providing death benefit protection|
|Expense charges||The company’s overhead expenses for administering the policy|
An in-force illustration helps policyholders determine if any modifications are needed due to changes in these components.
Requesting an In-Force Illustration
Policy owners are entitled to request an in-force illustration annually and should receive it within 30 days from the request. The request can be made through the policy owner’s agent, directly from the insurance company, or through a customer portal. The request must be made by the policy owner and should include different scenarios based on the current earnings rate, mortality, and expense charges.
Interpreting an In-Force Illustration
Reading an in-force illustration can be challenging, and policyholders may want to consult with a qualified financial advisor who knows life insurance well to help interpret it. The illustration shows current policy values and projects future values based on current components. Policyholders should take note of the cash value, which will start to decrease when policy expenses exceed earnings. If an illustration shows a decrease in cash value, policyholders should increase their premium payments to avoid policy termination. It’s important to request an in-force illustration every two to three years and when considering changes to the policy.
By understanding in-force life insurance, policyholders can avoid unpleasant surprises and ensure their policies remain in force until maturity.