INSURANCE: Illustrated Cures

Peter C. Katt
January 1994
Journal of Financial Planning;Jan1994, Vol. 7 Issue 1, p6
Academic Journal
The article focuses on various illustrations related to life insurance policies in the U.S. These illustrations are used to project future cash values and death benefits based on a given pattern of premium payments. Projected policy values depends on a particular company's current pricing assumptions including, mortality experience, investment yields, and expenses. Competitions has tempted life inurance companies and their agents to creatively "reduce" the illustrated cost of their cash-value policies, either by lowering the premium payments that might need to be paid. However, these changes have made low-cost cash-value policies vulnerable to changes in pricing assumptions that make policy values lower than the point-of-sale illustration indicated. U.S. Senator Howard M. Metzenbaum recently held hearing on illustration abuses, and he threatens federal regulations. Several problems have been discussed, including, using illustrations to estimate future performance; using illustrations to compare different policies; the absence of accountability;and policyholders not being notified.


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