What is an Illustrated Rate?
The Illustrated Rate is a hypothetical interest rate shown in life insurance policy illustrations to project the potential growth of cash value and policy benefits over time. It is commonly used in permanent life insurance policies, such as whole life or universal life, to provide an estimated outlook of how the policy may perform based on current assumptions. These projections help policyholders understand the potential benefits, including cash accumulation, loan availability, and death benefits.
Insurance companies use the Illustrated Rate to demonstrate how the cash value might grow under favorable conditions. However, it is important to note that the Illustrated Rate is not guaranteed; actual performance can vary based on the insurer’s investment returns, market conditions, and policy expenses.
When reviewing life insurance illustrations, it’s crucial for policyholders to understand that the Illustrated Rate is only a projection and to ask for scenarios with lower rates to assess the impact of less favorable conditions. This can help set realistic expectations for future policy values and ensure that the policy aligns with long-term financial goals.
The Illustrated Rate can play a key role in decision-making, especially for those considering permanent life insurance policies as part of their investment and legacy planning strategies.
