Advisor Tells Regulators That Life Illustrations Are Just Too Simple

The current illustrations for all kinds of universal life insurance policies are just too simple, and they fail to convey how much all kinds of changes could affect policy performance, a life insurance veteran told insurance regulators Tuesday.

Richard Weber, the principal at The Ethical Edge, a life insurance advisory firm in Pleasant Hill, California, made the case for updating permanent life policy illustration standards in a presentation to the National Association of Insurance Commissioners’ NAIC/Consumer Liaison Committee.

Weber said in an email interview that he believes that life insurers are following the existing policy illustration regulations, ”but illustrations are all unintentionally misleading.”

Weber argued, in the interview and a slide deck he used for the meeting presentation, that graphics used in the illustrations often imply that policy factors that can change, such as interest crediting rates, expense fees and the limits on the percentage of index or investment gains flowing into the crediting rate, are fixed.

“The policy owner needs a better way of managing their policy than through the use of a constant rate sales illustration or in-force illustration,” according to Weber’s presentation.

In the presentation, Weber said insurers, agents and advisors should make more use of statistical modeling tools and talk more in terms of the probability that a given policy and premium payment strategy will meet the client’s needs, rather than trying to show the policy might work in one particular scenario, or one small set of scenarios.