How to Read an Illustration – Guardian Life
Guardian Life Insurance Illustration
Planning Concept Based on the 2018 Dividend Scale
Use this document as a companion to your Life Insurance Illustrations.
Explanation of Terms and Column Descriptions:
Preferred: Top health condition for each age bracket. If your health is not a premium, then Standard rates apply and they’ll be slightly higher.
The “Top” Section (between the blue lines):
Benefit: This dollar figure represents the Guaranteed Death Benefit. All sample illustrations we run are for a death benefit of $100,000 and maximum cash value.
Whole Life 99: This is the name of the product or type of policy, and the dollar figure on the right is the premium.
Whole Life 99 Policies have a permanent death benefit and guaranteed level premium until age 99, after which no further premiums are due (We chose this type of policy because it maximizes the cash value as opposed to death benefit. There are other options as well, if your goals or needs are different).
Premium: The premium amount in dollar figures to the right of Whole Life 99 represents annual premiums.
Note: Guardian whole life policies also include an Enhanced Accelerated Benefit Rider, which allows you to accelerate your death benefit in the case of a terminal or serious chronic illness requiring long-term care. It is also included at no additional charge.
Illustrations are proportional: meaning you can double or cut in half and all the numbers for premiums, paid-up additions, cash value, and death benefit will adjust proportionally.
Paid-Up Additions Rider (Scheduled): Scheduled means they’ll bill you for it annually. The minimum payment is $100, which goes “straight to cash”, in other words, it is added directly and immediately to cash value, while also increasing your death benefit.
Paid-Up Additions Rider (Unscheduled): Unscheduled means it is optional and the amount represents the maximum Paid-Up Additions you can add every year. The contribution goes 95% to cash (and 5% to growing death benefit), but is optional, and you can add less if needed.
Note: Paid-Up Additions are the key to accelerating the growth of your cash value, so you want to strategize your policy so that the PUAs as well as the premiums fit into your budget. (We can always adjust the unscheduled PUA downward if things change in your financial situation)
Additional Riders are also available, such as Waiver of Premium and Guaranteed Insurability Option (GIO). Contact us for information or quotes.
Total First Year Premium includes the scheduled, unscheduled and Paid-Up Additions.
Dividend Option: Paid-Up Additions (D). Dividends in this illustration have been elected to automatically go toward Paid-Up Additions, adding to Cash Value while also increasing Death Benefit. You also have other dividend options such as using dividends to pay down policy loans, or receiving dividends as income, which many of our clients do in their later years.
Just below the second blue line:
Guaranteed Section: Guarantees include level premium, minimum death benefit (assuming premiums are paid), and a base level of guaranteed cash value. The guaranteed cash value is a dollar figure (not an interest rate).
Non-Guaranteed Section: These figures include dividends and optional (unscheduled) Paid-Up Additions. We can count on these figures even though they are not guaranteed because once a dividend gets paid it becomes part of the guaranteed cash value and most good mutual insurance companies have paid a dividend every year over 100 years.
Policy Year, Age at the Start of Year is self-explanatory. Note, some companies list Age at End of Year and others round up, so if you are 45 ½, they’ll consider your insurance age 46.
Base Policy Annual Premium: this is the minimal amount to keep a policy inforce and does not include PUAs. Note, the bulk of premiums are added to Guaranteed Cash Value after the first year, similar to Paid-Up Additions and Dividends.
Base Guaranteed Cash Value is a guaranteed dollar figure, not an interest rate. This is the “base” guaranteed figure if you paid ONLY the base policy premium and added no Paid-Up Additions or Dividends.
Important columns to note starting from the right in this section:
Annual Dividends are projected, not guaranteed. Life Insurance Illustrations are based on the dividend scale of the current year, which is guaranteed for the current year (in this case, 2018). The amount varies from year-to-year and is announced prior to the previous year’s end. Most mutual insurance companies have paid a dividend every year for well over 100 years. Though not guaranteed, dividends are extremely reliable historically. Guardian has paid dividends to policyholders every year since 1868, including through the Great Depression.
Net Premium represents the Base Policy Premium plus all Paid-Up Additions (scheduled and unscheduled, which are optional). It does NOT include the Dividends. The amount of the Net Premium varies in later years because of the MEC (modified endowment contract) limit. Illustrations are typically designed for max cash contribution which are limited by MEC limits.
Note: The company will specify every year in a letter to you what PUAs you can pay without exceeding the MEC limit. The MEC limits are set by the IRS and interpreted by the insurance companies’ illustration software and can identify your limit (maximum contribution) annually.
Cumulative Net Premium is the combined total of the Net Premiums.
Net After-Tax Outlay is the same as Net Premium, however it can be different for businesses.
Cumulative Net After Tax Outlay equals the Cumulative Net Premium column, however it can be different for businesses.
Cash Value of all Additions is only the cash value from PUAs. This is assumed the maximum amount of unscheduled PUAs have been contributed.
The Net Cash Value column is your Total cash value. This is your CLUE account (from Live Your Life Insurance; Control, Liquidity, Use and Equity) that you can borrow against. Remember it is borrowing against, not from. Other names for this account are called: Wealth maximization account, 770 account.
Death Benefit: notice it is increasing annually, due to the PUAs and Dividends being added to the policy. It must do this so the policy doesn’t become a MEC.
Net Death Benefit: Notice it typically rises each year
- NET CASH VALUE: Notice this is “net”, (on the Status Report, we call it “gross”)
- CASH VALUE OF ALL ADDS: This is the cash value of the paid-up additions only
- NET AFTER TAX OUTLAY: Notice the first year may be a partial year and all other years reflect the maximum contribution (may or may not include paid-up additions)
- NET PREMIUM: Notice the first year may be a partial year and will most likely match the after-tax outlay column
- END OF YEAR DIVIDEND*: Dollar figure the insurance company added to your cash value. Please remember, once this dividend has been paid, it becomes a part of the Guaranteed cash value and will set a new floor, which is why we need to supply you with a new inforce illustration every year if you want to track this accurately.
Additional Notes: regardless of which insurance company we’ve shown you, these columns will be similar. Remember there are no “deals” in the life insurance industry! Life insurance (and the Whole Life product) have been around too long for one company to do better than another one consistently over time. If there appears to be differences, they are short lived and a few years later, another company will rise to what appears to be the top for a few years. Long-term all the top mutual life insurance companies are nearly the same. What matters most is not which company you use, but what you DO with the policy yourself. Specifically, the critical strategies are to fund it as long as you can, utilize your cash value to get your dollars working harder, and pay back all loans over time.