Flexible premiums, if someone watches them.

Reading a universal life illustration: three bases, one end date

In California, if an insurer identifies a policy form as marketed with an illustration, a basic illustration is required (Insurance Code section 10509.954), and section 10509.956 sets its layout. Find these parts in each proposal:

• The label and the basics. Section 10509.955 requires the words "life insurance illustration," the insurer's name, the underwriting or rating class, the policy's generic name and form number, and the initial death benefit.
• Guaranteed values first. Guaranteed death benefits and surrender values, if any, must be shown and clearly labeled guaranteed, and they come before the matching non-guaranteed figures.
• The numeric summary. Death benefits, values and premium outlay for at least years 5, 10 and 20, and age 70 if applicable, on three bases: policy guarantees; the insurer's illustrated scale; and the illustrated scale with non-guaranteed credited interest and non-guaranteed charges each set at the average of the guaranteed rates and the illustrated rates.
• The year coverage ends. If coverage would cease before policy maturity or age 100, the illustration must identify that year for each of the three bases. I read this line first.
• The year-by-year ledger. At least years 1 through 10, then every fifth year ending at age 100, maturity or final expiration, plus any year the premium outlay is to change.

It must also state that it assumes currently illustrated non-guaranteed elements continue unchanged for all years shown, that this is not likely, and that actual results may be more or less favorable. Where non-guaranteed values may be used to pay policy charges, it must disclose that a charge continues to be required and that premium outlays may need to continue or resume. Section 10509.952 excludes variable life from these rules. For indexed designs, see indexed universal life.

The annual report and its lapse warning

Section 10509.959 sets the minimum annual report on a California universal life policy designated for illustrations. It must include:

• The beginning and end dates of the current report period.
• The policy value at the end of the previous period and at the end of the current period.
• The total amounts credited or debited to the policy value during the period, identified by type, including interest, mortality, expense and riders.
• The current death benefit on each life covered, the net cash surrender value, and any outstanding loans, all as of the end of the period.

The lapse warning: on a flexible premium policy, if, assuming guaranteed interest, mortality and expense loads, the net cash surrender value will not maintain insurance in force until the end of the next reporting period unless further premium payments are made, the report must say so. Fixed premium policies get a parallel notice that also assumes continued scheduled premium payments. If the insurer made an adverse change in non-guaranteed elements since the last annual report, the report must prominently display that fact and the nature of the change.

A report without an in force illustration must prominently display an "IMPORTANT POLICY OWNER NOTICE." It says you may request a current illustration annually without charge, that you should not consider replacing the policy or changing coverage without requesting one, and that if it doesn't arrive within thirty days of your request, you should contact your state insurance department. No signature is required on an in force illustration you request. Related: life insurance grace period laws by state.

Official sources

• California Department of Insurance: Life Insurance and Annuities guide (universal and variable universal life)
• New York Department of Financial Services: consumer alert on universal life policies (2019)
• NAIC: life insurance illustrations (Model #582)
• Insurance Information Institute: types of permanent life insurance policies
• California Insurance Code 10509.952 (scope of the illustrations chapter)
• California Insurance Code 10509.953 (definitions)
• California Insurance Code 10509.954 (policy form designation)
• California Insurance Code 10509.955 (general rules and prohibitions)
• California Insurance Code 10509.956 (basic illustration standards)
• California Insurance Code 10509.958 (delivery, signatures, record retention)
• California Insurance Code 10509.959 (annual report and policy owner notice)
• California Insurance Code 10509.960 (illustration actuary certification)
• NAIC Life Insurance Illustrations Model Regulation (Model 582)