Illustrations & Exhibits

One of the best ways to explain policies clearly and completely is to use policy illustrations. With the development of interest-sensitive and variable policies, computer-generated illustrations detailing policy performance under a handful of scenarios have become essential. Many agents use these illustrations as the center of their sales presentation.

Policy illustrations simply show how the policy would perform under a given set of hypothetical financial assumptions. A copy of any product illustration shown to a prospect should be provided to the prospect for his or her file — and it should be made completely clear that the assumptions upon which the illustration is based may not prove to be correct. Life insurance dividends, costs, and interest rates will almost certainly not be as illustrated and may be higher or lower than shown.

Life insurance product illustrations require special care to ensure the prospect is properly informed. Consider the illustration of a life insurance policy in which dividends pay all of the premium at some future point. It is possible that future dividend payments will not meet the hypothetical assumptions and be insufficient to fully offset future premium payments.

If a life insurance agent proposes such a policy, he or she should illustrate how the policy would perform if dividends were lower than illustrated by re-running the illustration using a lower dividend scale.

Insurance and annuities do offer significant tax benefits — but any discussion of tax advantages should come with a disclaimer. Agents should disclose how those tax advantages will benefit the particular client’s situation and provide a full explanation of the conditions required to qualify for those advantages.

Insurer-provided product illustrations normally present few ethical problems because they are created by the insurer. Ethical issues generally arise when the illustration is created by an outside vendor or by the agent. Insurers often prohibit the use of agent-created illustrations unless they have been approved by the sponsoring company — company-created illustrations contain important information that helps provide a balanced and complete presentation.

While an agent should only present illustrations provided by sponsoring companies, sometimes it may be desirable to present ancillary supporting information. These supporting illustrations present a large area of ethical concern. To comply with ethical requirements, such illustrations must be:

Any sales literature used by the agent — including agent-created supporting illustrations — should be submitted to the companies whose products are illustrated for their input and approval. The agent should submit point-of-sale supporting information to all represented companies, whether or not they require such submission.