What Is an In-Force Illustration and Can It Benefit Your Financial Decisions?

Understanding your life insurance policy and how much you will pay for it over time is crucial to your financial well-being. Whether you’re interested in keeping your policy in force or are ready to end coverage by surrendering or selling the policy, the best way to get an accurate view of your policy’s future performance and value is by taking a look at an in-force illustration. While you may want to have your in-force illustration evaluated by an expert who understands your financial goals, you can only make informed decisions once you have a full picture of your projections and options. Read on to learn more about what an in-force illustration is, how to obtain one, and how to plan ahead for your future.

What Is an In-Force Illustration?

Before jumping into how an in-force illustration can help you plan for the future, it’s vital to understand what an in-force illustration is. An in-force illustration is a powerful financial tool that offers a comprehensive snapshot of an existing life insurance policy’s performance and future projections. It calculates various aspects of the policy, including its current cash value, death benefit, and premium payments, giving policyholders the ability to gauge the health and sustainability of their life insurance coverage. The document itself provides a visualized timeline of columns that show these amounts throughout the course of your policy. By evaluating the known factors — premium payment obligations, the policy’s owner’s age, and the number of years the policy remains in-force — alongside assumptive factors, including policy value accumulation through an estimated interest rate and estimated cash surrender value for example, you can evaluate the build-up of cash in a policy over time. These projects allow policyowners the opportunity to adjust their premium payments, modify coverage, or simply gain a clearer understanding of their policy’s long-term potential.

Why Should You Acquire an In-Force Illustration?

The only certainty in life is change. The factors that made up your policy structure when you first took out the policy have likely changed, making it more important than ever to understand what the future of your policy looks like today. Here are a few reasons why you, as a policyowner, may want to acquire an in-force illustration:

1. You may want to keep your life insurance coverage intact. When you obtain an in-force illustration, you can compare it to your original sales illustration. This helps you better understand where you currently stand with your policy and whether the future of your policy is on track or misaligned due to miscalculated interest rates, loans, or withdrawals, or changes in your premium payment schedule.
2. You’re comparing life insurance policies. Seeing where your current policy stands can help you determine whether you have enough coverage for the remainder of the policy or if you should consider making policy changes.
3. You’re interested in selling your life insurance policy. The buyer you work with in a life settlement will likely want to obtain an in-force illustration to understand the realities of your policy’s future. Having an in-force illustration allows the buyer to accurately evaluate how much your policy is worth.
4. You’re planning for the future. An in-force illustration allows you to run financial scenarios that uncover unforeseen financial strains or opportunities. Whether the policy is terminating earlier than expected or the premium payment schedule is different from what you expected, having a grasp of your policy’s current reality can help you make decisions for your financial future or adjustments for cash flow purposes as you enter retirement.

Whether you’re contemplating policy adjustments or simply striving for a clearer financial picture, an in-force illustration can be a key asset in navigating your financial journey.

How to Get an In-Force Illustration

To obtain an in-force illustration, you have a couple of valuable options. Whether going directly to your life insurance company or going through an advisor who can obtain the information on your behalf, it’s important to review the contents and have access to professionals who can answer any of your questions.

Reach Out to Your Insurance Provider

You can reach out directly to your life insurance company, usually through their customer service or an agent, to request an in-force illustration. It is advisable to request this information in writing, specifying the policy details and the scope of the illustration required. Life insurance companies are required to provide you with an in-force illustration if you request one, per NAIC regulations.  Many insurance companies also offer online portals or mobile applications that policyholders can access to request in-force illustrations.

Typically, a life insurance carrier can provide an in-force illustration with a standard set of assumptions. You can also request additional types of in-force illustrations that have different sets of assumptions. For example:

• Current Premium Illustration: This type of illustration shows how the policy’s cash value changes over time if your premium payments remain the same. You may find that the cash value decreases if the policy’s expenses surpass its earnings.
• Guaranteed Illustration: This type of illustration shows a worst-case-scenario assumption: the lowest possible interest rate and the highest costs to keep the policy in-force. Using these assumptions, you can evaluate how long your policy will remain alive and how much it will cost.
• Current Interest Rate Illustration: This type of illustration shows what your premiums are with an adjusted interest rate assumption.

Contact a Financial Advisor or an Insurance Professional

Whenever possible, individuals should seek guidance from a financial advisor or insurance professional who can assist in obtaining and interpreting these financial scenarios through a lens on their financial future. Make sure to communicate your financial goals with this trusted advisor — freeing up more cash flow in retirement, selling your policy to pay for health bills, for example — so they can best help you decide what to do with your life insurance policy.

What Should You Do If Your In-Force Illustration Lacks Promise?

• Once you and/or a financial advisor have evaluated your in-force illustration and the projection does not look promising, you have options: make changes to your policy, get a new policy, terminate your policy, surrender it, or sell your policy for a cash payout. Make changes to your policy. If your in-force illustration shows that your current policy is not performing as expected, one option is to adjust the terms of your policy. You may be able to increase or decrease your premium payments, modify your death benefit, or even adjust how the policy’s cash value is invested. These changes can help you align the policy more closely with your financial goals and extend its longevity. Working with a financial advisor can help you weigh these adjustments to ensure you are making the right decision based on your current needs and future plans.
• Find a new policy. If your current life insurance policy no longer meets your needs, consider shopping for a new one. Depending on your age and health, you may be able to secure a policy with better terms or more favorable premiums. This is especially relevant if you find that the coverage offered by your existing policy is insufficient or if new insurance products offer features that better fit your current financial situation. Just be mindful of any potential tax implications or the costs of switching policies.
• Surrender your policy. Surrendering your life insurance policy means canceling the coverage in exchange for its cash surrender value. If your policy has accumulated cash value over time, this can be an option to access funds that might be more useful now than the death benefit would be later. However, surrendering a policy often comes with surrender charges and potential tax implications, so it’s important to weigh these factors against the immediate benefit of receiving the cash. Before surrendering your policy, you may want to see if you qualify for a life settlement.
• Terminate your life insurance policy. For some, maintaining life insurance may no longer be necessary. If you have reached a point where your financial obligations have decreased — such as children becoming financially independent or debts being paid off — or if you don’t have any cash surrender value because you have a term policy, terminating your life insurance policy could free up funds that are better used elsewhere. Be sure to carefully consider your future needs, as this decision is typically final, and you may not be able to reinstate coverage later. Before terminating your policy, you may want to find out if you’re eligible to sell it in a life settlement, as term policies can qualify.
• Sell your life insurance policy for a payout. Another option is to sell your policy through a life settlement, where a third party purchases your policy for a cash payout. The buyer takes over the premium payments and becomes the beneficiary of the death benefit. This can be a viable option if you no longer need the coverage and prefer to receive a lump sum payment. A life settlement can provide more value than surrendering the policy, but it’s important to work with a trusted advisor to ensure you are getting the best possible deal. Contact the experts at Coventry Direct today to see if you qualify.

In-Force Illustration FAQs

Do you still have questions about in-force illustrations? Take a look at some frequently asked questions to find the answer below.

What Are The Benefits of Requesting an In-Force Illustration?

The benefits of requesting an in-force illustration are to see future projections and assess your plan for your life insurance policy. You are able to see your current cash value, death benefit, and future premiums based on more real-time assumptions compared to the original assumptions used when you first took out the policy.

What Happens if a Life Insurance Policy is Not In Force at the Time of the Policyholder’s Death?

The consequences of not having your life insurance policy be in force, or “active,” at the time of the policyowner’s death means potentially forgoing the death benefit. The insurance carrier can deny payment to your beneficiaries if the policy is not in force or if your policy has lapsed due to not making payments.

What Assesses the In-Force Status of a Life Insurance Policy?

A life insurance policy is “in force” if the agreement between the policyholder and the insurance carrier is met. The policyholder is responsible for making premium payments, and the carrier is responsible for paying the death benefit to the policyholder’s beneficiaries at the time of death. If premium payments are made on time, the policy remains in force. If the payments are not made, the policy lapses, or if it is canceled, the policy has been surrendered and is no longer in force.

Conclusion

An in-force illustration can be a valuable tool for gaining insight into your policy’s financial future — you just have to understand how to put this tool to use. By understanding how they work and leveraging their benefits, you can make informed decisions that pave the way for a secure and prosperous financial journey.

No matter what path you decide to take, getting your policy assessed for a life settlement can provide you with an option you may not have considered in the past: selling your policy for a cash payout you can use today. Get your life insurance policy assessed for a life settlement today by Coventry Direct. Our team of experts can help you get qualified for a life settlement today.