Every illustration for an indexed life policy sold since December 14, 2020 must show a second ledger at a lower crediting rate, side by side and with equal prominence (NAIC Actuarial Guideline 49-A, section 7, revision adopted December 11, 2025). Read that column first.
What an illustration is, and what it is not
An illustration is the ledger of year-by-year numbers a salesperson shows you: premiums, cash value, surrender value and death benefit. Under the National Association of Insurance Commissioners (NAIC) Life Insurance Illustrations Model Regulation 582, a basic illustration must show both guaranteed and non-guaranteed elements, and it must carry a statement that the illustration "assumes that the currently illustrated nonguaranteed elements will continue unchanged for all years shown. This is not likely to occur" (NAIC Model 582, section 7, checked October 14, 2026).
You sign the illustration, and a copy goes to the insurer. If the numbers change before the policy is issued, the new version must be labeled "Revised Illustration" (NAIC, Life Insurance Illustrations topic page, updated January 8, 2026). Keep every version you are given.
Guaranteed, midpoint and illustrated columns
The numeric summary must show values at policy years 5, 10 and 20 and at age 70 on three bases: the policy guarantees, the insurer's illustrated scale, and a midpoint that uses the average of the guaranteed and illustrated interest rates and charges. It must also name the year coverage would end on each basis (NAIC Model 582, section 7.C, checked October 14, 2026).
The guaranteed column assumes the lowest credits and the highest charges the contract allows. If it shows the policy lapsing at 82 while the illustrated column runs to 100, that gap is the risk you carry. States adopt these rules into their own law; California, for example, requires the surrender value shown to be the lump sum after surrender charges, policy loans and loan interest (California Insurance Code 10509.956, checked October 14, 2026).
The illustrated rate and the AG 49-A limits
The NAIC adopted Actuarial Guideline 49 (AG 49) in 2015 to make index illustrations consistent. For policies sold on or after December 14, 2020, it was replaced by Actuarial Guideline 49-A (AG 49-A), with revisions effective in 2023 and 2026 (NAIC topic page, updated January 8, 2026).
Under AG 49-A, the top illustrated rate is set from a benchmark account: a one-year S&P 500 point-to-point account with a cap, a 0% floor and 100% participation. The maximum rate is the lesser of the average of the benchmark's 25-year historical returns at today's cap and 145% of the insurer's net investment earnings rate (NAIC AG 49-A, section 4, revised December 11, 2025). Ask what rate your illustration uses and what the maximum is.
Multipliers and bonuses may raise the illustrated credit only by the extra budget the insurer spends on them, usually funded by added charges, and a 2023 revision tightened that for policies sold on or after May 1, 2023 (AG 49-A, section 4.C). The required side-by-side alternate ledger uses a rate no higher than the lesser of the maximum minus 1 percentage point and the fixed account rate (AG 49-A, section 3.A). For policies sold on or after April 1, 2026, the historical table is limited to the most recent 25 years and must say that historical index changes "are not indicative of future returns" (AG 49-A, section 7).
Loans: the arbitrage assumption
Many illustrations show income from policy loans. The money you borrow is charged interest, while the cash value behind the loan keeps earning index credits. The illustration assumes the credits beat the loan rate. AG 49-A caps that assumed spread at 0.50 percentage point: with a 4.00% loan rate, the illustration may credit no more than 4.50% on the borrowed portion (AG 49-A, section 6). On the alternate ledger, the spread must be zero.
Real years are not steady. Hypothetical: a $300,000 loan at 5% costs $15,000 in interest. At an illustrated 5.5% credit, the collateral earns $16,500. In a 0% year it earns nothing, and the loan still grows by $15,000. A few of those years can push the loan past the cash value, and a lapse with a loan can create a tax bill with no cash to pay it (Brown v. Commissioner, U.S. Court of Appeals for the Seventh Circuit, September 11, 2012). Ask whether the loan rate is fixed or variable.
Stress-test before you buy, and every year or two after
You can ask for more than one illustration. Request versions with:
- The crediting rate 1 and 2 points below the illustrated rate.
- 0% credits for the first three years, and separately 0% for three years in your 70s, when the account is larger.
- The planned loans run at a lower credit, to see when the policy would lapse.
- The premium needed to keep coverage to age 100 at a lower rate.
After the first year, an in-force illustration shows how the policy has actually done and projects it forward at today's rates. Model 582 defines it as an illustration given once the policy has been in force for a year or more. If your annual report does not include one, it must tell you that you may request one each year without charge, and to contact your state insurance department if it does not arrive within 30 days (NAIC Model 582, section 10, checked October 14, 2026). Asking every year or two shows you early whether premiums need to rise.
Before you sign, look up the insurer through the NAIC Consumer Insurance Search, and check the salesperson's license and any complaints with your state insurance department. After delivery you have a free-look period set by state law; California requires at least 30 days for individual life policies sold to senior citizens (California Insurance Code 10127.10, checked October 14, 2026). A fee-only fiduciary or a tax professional can review the ledger.
A plain example: illustrated vs stress-tested
Hypothetical: $25,000 a year for 20 years ($500,000 paid in), a 7% premium load and other charges of $3,000 in year 1 rising 5% a year. These are made-up round numbers, not any company's policy. Only the crediting pattern changes.
| Scenario | Account value after 20 years | Change vs illustrated |
|---|---|---|
| Illustrated: 6% every year | $730,460 | none |
| 0% in years 1 to 3, then 6% | $710,133 | $20,327 less |
| 6%, then 0% in years 18 to 20 | $615,940 | $114,520 less |
| 5% every year | $648,025 | $82,435 less |
| 0% every year | $365,802 | $364,658 less |
Each year: last year's value, plus $23,250 (the premium after the 7% load), minus that year's charges, times one plus the credit. The two middle rows have the same three 0% years. When they come late, on a larger balance, they cost more than five times as much. A steady illustration hides that sequence risk, which is why the order of bad years matters as much as the average.
Red flags
- Showing only the illustrated column, or a summary page without the guaranteed values.
- Skipping the side-by-side alternate ledger or calling it irrelevant.
- An illustration with no preparation date, no page numbers or no signature page.
- Large multipliers or bonuses with no clear list of the charges that fund them.
- Loan income that assumes the cash value out-earns the loan rate every single year.
- A historical back-test chart offered as proof of what the policy will do.
- Changing the illustration after you apply without labeling it a revised illustration.
- Refusing to run a lower-rate or 0% stress test when you ask.
- A premium schedule that stops early on the illustrated basis but lapses on the guaranteed basis.
- Describing premiums as vanishing or the policy as paid up when it depends on non-guaranteed credits.
Questions to ask before you sign
- What crediting rate does this illustration use, and what is the maximum allowed for this account?
- At what age does the policy lapse on the guaranteed column and on the midpoint?
- What does the alternate ledger show at year 20 and at age 85?
- Can you run this at 1 and 2 points lower, and with 0% for three years?
- What are the loan interest rate and loan type, and is the rate fixed or variable?
- How much does each multiplier or bonus cost me each year?
- What premium keeps this policy in force to age 100 if credits come in lower?
- Will you send me an in-force illustration each year, or how do I request one?
- How have caps on this account changed for existing policyholders?
- How long is my free-look period after delivery?
Read This Before You Sign
A one-page checklist: the red flags in annuity and indexed universal life (IUL) sales, and the questions to ask before you sign anything. A one-page checklist for reading an IUL illustration and the stress tests to request. We’ll email it to you.
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Sources
- NAIC: Actuarial Guideline XLIX-A, Policies with Index-Based Interest Sold on or after December 14, 2020 (revision adopted December 11, 2025)
- NAIC: Life Insurance Illustrations, Insurance Topics (last updated January 8, 2026)
- NAIC: Life Insurance Illustrations Model Regulation #582 (checked October 14, 2026)
- California Legislative Information: Insurance Code 10509.956, basic illustration standards (checked October 14, 2026)
- California Legislative Information: Insurance Code 10127.10, 30-day return for senior citizens (checked October 14, 2026)
- U.S. Court of Appeals, Seventh Circuit: Brown v. Commissioner, No. 11-2508 (September 11, 2012)
- NAIC: Consumer Insurance Search (checked October 14, 2026)
The Retirement Literacy Foundation is a 501(c)(3) public charity. This page is general education, not tax, legal or investment advice. Nothing is sold here, no product is recommended, and RLF accepts no funding from financial companies. Rules and figures change; each one above shows its source and date. Check anything you plan to act on with your state insurance department or a qualified professional who is not paid on the product.