Why Life Insurance Illustrations Never Hit Their Projections…


I have been retailing or wholesaling life insurance products since 1987 (that’s 30 years if you are counting). This experience spans every category of permanent life, including both stock and mutual companies.

In my 30 years, not one of the thousands and thousands of illustrations ever met their projection.

Whole Life Dividend Contracts – dividends have come down and down

Current Assumption UL – interest rates have come down almost every year

Variable Universal Life – Fees are high, risks are inherent and returns have been sub-par

Why is this trend occurring? Returns for both Whole Life and Universal Life are dictated by the yields on the bonds that are bought with the premiums the carriers receive. The greatest bull market in bonds have seen rates go down for 30 years. We all know the story; owners of the above contract types have experienced the same results on their policies, rates and dividends going down for almost 30 years !

What can carriers do to try keep policy owners happy and still drive sales?

  • Hope that rates go up. This may happen, but carrier portfolios are so diluted by low yielding bonds that policy returns will lag market returns for a long period of time. In fact, it could be years before policy dividends and interest rates improve even with a big spike in rates because their portfolios are so buried in low yielding bonds or new money crediting products are paying such a higher return that there renewal rates won’t ever be competitive. This is called disintermediation. It scares life insurance companies. Policy owners leave for higher returns and new sales can’t be made because interest and dividend rates are so low. This does not seem to be a good outcome for the carrier, the policy owner, and the agent.
  • Life carriers can sell higher yielding bonds in the carrier’s portfolio to book capital gains and “prop up” the crediting and dividends rates on in force policies. While this may provide a short term fix, these higher yielding bonds will have to be replaced with very low yielding bonds essentially kicking the can down the road to a point where rates will eventually come down again, perhaps even more. This is not good.
  • Block off old books of life business and start new ones so higher yielding bonds can keep “illustrated and renewal rates” high. This is a very common practice. Basically throw in the towel on the old book buried in low yielding bonds as we talked about above and start a new block to drive illustrations, new sales and renewals. This is a very difficult call for mutual companies as policy owners are the owners of the company, but not so much for stock companies.

What can an agent do?

  • Sell GUL (guaranteed Universal life) – essentially term to 100. This is a slippery slope folks. You are commoditizing yourselves because a large part of your value is based on price. If price is the driver, then technology will eventually replace you. Observe what Amazon has done to retail. Have you talked to a travel agent lately? Carriers are already creating websites and technology where a consumer can spreadsheet his illustration through Amazon and other platforms. This process is quick, cheap, and easy, so beware!
  • Sell cash accumulation and retirement income solutions because that’s what consumers want and need advice and they need expertise. They need you.

Click here to download a whitepaper to understand the difference between IUL and Whole Life