Guaranteed and Illustrated Figures
Compare index numbers only for similar policies, those which provide
essentially the same benefits, with premiums payable for the same length
of time. Make sure all are calculated for your age and the kind of policy
and amount you intend to buy. Remember, no one company offers the
lowest cost at all ages for all kinds and amounts of insurance. Also,
keep in mind that a policy with smaller index numbers generally is a
better buy than a similar policy with larger index numbers.
Small differences in index numbers should be disregarded, especially
where there are dividends or non-guaranteed premiums or benefits.
Also, small differences could easily be offset by other policy features or
differences in the quality of service from the agent or company. When
you find small differences in the indexes, your choice should be based
on something other than cost. Finally, keep in mind that index numbers
cannot tell the whole story. You also should consider:
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• The pattern of policy benefits. Some policies have low cash
values in the early years that build rapidly later. Other policies
have a more consistent cash value build-up. The agent or
company will give you a disclosure statement that will show
cash values for selected years in the future.
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• Special policy features that may specifically meet your
needs.
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• The methods by which non-guaranteed elements are
calculated. For example, interest rates are an important factor
in determining policy dividends. In some companies, dividends
reflect the average interest earning on all policies whenever
issued. In others, the dividends for policies issued in a recent
year, or a group of years, reflect the interest earnings only on
those policies. In these cases, dividends are likely to change
more rapidly when interest rates change.
Some policies are sold only on a guaranteed or fixed cost basis. These
policies do not pay dividends; the premiums and benefits are fixed at the
time you buy the policy and will not change.
Many policies provide benefits on a more favorable basis than the
minimum guaranteed basis in the policy by paying dividends, or by
charging less than the maximum premium specified. Or, they may do this
in other ways such as providing higher cash values or death benefits
than the minimums guaranteed in the policy. For these types of policies,
the policy performance may be shown by using both guaranteed and
current performance — called currently illustrated basis cost
comparison indexes.
The currently illustrated basis shows the company’s current scale of
dividends, premiums or benefits. This scale can be changed after the
policy is issued, so that the actual dividends, premiums or benefits over
Use Cost Comparison Indexes
Differences in Index Numbers
Guaranteed or Fixed Cost Basis
Currently Illustrated Basis Cost
Comparison Indexes
Currently Illustrated Basis
A Consumer’s Guide to Life Insurance Page 4