How to Read a Life Insurance Illustration: Guaranteed vs. Non-Guaranteed

You have probably seen it.

An agent on a YouTube Short or Instagram video holds up a number — sometimes on a whiteboard, sometimes just spoken with confidence — and tells you that if you put $250 a month into this life insurance product for 30 years, you will have some impressive, specific amount of tax-free income waiting for you. The delivery is enthusiastic. The number is real-looking. And the word they use is will.

Maybe...but I want to talk about that word.

There is an old saying — one I heard from my 10th grade geometry teacher — that when you ass-u-me, you risk making a "slang word for a donkey" out of you and me. The reason it stuck is because, as a 15-year-old boy in a conservative Catholic school, it was funny. Today it sticks as a 55-year-old because I have watched it happen too many times to count, to myself and others in one capacity or another. So the school of hard knocks has this message for you when it comes to life insurance illustrations.

I have been a CFP® and CLU® for more than two decades. I have written continuing education courses on how life insurance and annuities work. I have taught ethics to agents. And I can tell you with complete honesty that the single most common mistake I see — from agents and consumers alike — is treating the non-guaranteed column of a life insurance illustration as if it is a promise.

It is not a promise. It is a scenario.

That is what this article is about. If you have an illustration in your hand — or an appointment coming up where one will be shown to you — I want you to know exactly what you are looking at before you sign anything. Not to talk you out of a decision. Not to criticize the agent who showed you the numbers. But to make sure that whatever you decide, you decide it with a clear understanding of what is guaranteed and what is assumed.

Those are two very different things, and the document in front of you contains both.

What a Life Insurance Illustration Actually Is

A life insurance illustration is a disclosure document. Carriers are required by state insurance regulation to produce one for any cash value life insurance policy before the policy is issued. It is not a marketing piece — though it can feel like one. It is not a contract. It is a projection of how the policy is expected to perform under a defined set of assumptions, shown alongside what the policy guarantees by contract.

The illustration has two sides. One side shows you what the insurance company is required to deliver. The other side shows you what the policy could deliver if current conditions hold.

Both sides matter. But they are not equal, and they are not interchangeable.

Understanding the difference between them is the most important skill you can develop as a life insurance buyer — and it is the skill that the short-form video will never teach you, because it takes longer than sixty seconds to explain and does not make for a compelling thumbnail.

Let me explain both sides clearly.

The Guaranteed Column: The Only Column That Is a Promise

Every illustration has a guaranteed column — or in some formats, a guaranteed section — and this is where I want you to start every single time. Before you look at anything else. Before you ask about the income projections. Before you calculate what that number means for your retirement. Start here.

The guaranteed column shows you what the insurance company is contractually obligated to deliver assuming you pay your premiums as scheduled. These values are written into the policy itself. If the company fails to deliver them, you have a breach of contract claim. They are the floor — the worst-case outcome under normal conditions.

In a whole life policy, the guaranteed column reflects a guaranteed schedule of cash values and a guaranteed death benefit. The cash value growth in the guaranteed column is intentionally modest. That is not a flaw. It is the contractual minimum the carrier has committed to regardless of what happens to interest rates, mortality experience, or the company's expense ratios.

In a universal life or indexed universal life policy, the guaranteed column is typically run at the guaranteed minimum credited rate — often 0% or 1% — with cost of insurance charges at their maximum guaranteed levels. This is the stress test. It shows you what happens to the policy if everything that can go against you does.

I want to be honest with you about something: the guaranteed column on a cash value policy rarely looks impressive. Cash value builds slowly in the early years. The death benefit may be level. The numbers do not generate excitement. That is exactly why agents, even well-intentioned ones, tend to move past it quickly.

Do not let that happen in your meeting.

Ask the agent to walk you through the guaranteed column first. Ask what the policy looks like at year ten, year twenty, and year thirty using only the guaranteed assumptions. If the policy still makes sense to you at those numbers — if the death benefit protection alone justifies the premium — then you have a policy worth looking at further. If the only way the policy makes sense is the non-guaranteed column, you need to understand what is behind those numbers before you go any further.

"May," Not "Will": Understanding the Non-Guaranteed Column

The non-guaranteed column — sometimes called the current assumption column — is where most illustrations spend most of their time, and where most of the excitement gets generated. This is the column with the bigger cash values, the projected income streams, the numbers that made you pull out your phone and start typing questions into Google.

Here is what you need to understand about every number in that column: it is a scenario, not a schedule. It reflects what happens if current conditions — interest rates, dividend scales, credited rates, cost of insurance charges — continue into the future at roughly their present levels. They may. They may not. The illustration cannot tell you which.

What drives the non-guaranteed column depends on the type of policy you are looking at. Each product has a different engine underneath, and that engine runs on different fuel.

How Do Whole Life Policy Dividends Work in an Illustration?

The non-guaranteed column reflects the carrier's current dividend scale. Dividends in a participating whole life policy are paid when the company's actual investment returns exceed its guaranteed assumptions, when mortality experience is more favorable than expected, and when expenses come in below projections. When those three things go well, dividends are declared. The current scale shown in the illustration reflects what the company is paying today — not what it has promised to pay tomorrow.

Dividend scales have been declining for decades alongside interest rates. Carriers like Penn Mutual and Lafayette Life have strong track records of dividend payments, but no carrier can guarantee future dividends by law. The illustration is required to say this. Make sure you read it.

What Are the Risks in an Indexed Universal Life (IUL) Illustration?

The non-guaranteed column in an indexed universal life (IUL) illustration is run at an assumed credited rate — a rate the agent selects within regulatory limits, meant to represent a plausible long-term average based on the policy's indexing strategy. That rate is not a return the market is going to deliver. It is an assumption about what the index crediting mechanism might produce over time, based on the current cap rates, participation rates, and floor provisions built into the policy.

There are two things about IUL illustrations that I want you to be especially aware of.

First, the assumed credited rate is chosen at illustration time. Regulations cap how optimistic it can be, but agents still have discretion within that range. An illustration run at 7% looks meaningfully better than one run at 5.5%. The assumed rate is disclosed — it will appear somewhere on the illustration — but it is easy to miss if no one draws your attention to it.

Second, the 0% floor that IUL policies advertise as downside protection does not protect the policy's cash value from cost of insurance charges. In a year where the index returns 0% and you are credited nothing, your cost of insurance is still deducted from your account value. If this continues for multiple years, the policy can erode faster than the illustration suggested — particularly in later years when cost of insurance charges are higher because you are older. This interaction between credited rate and cost of insurance is the most important thing to understand about IUL performance, and it is rarely shown clearly in a short-form video.

This gap between what's illustrated and what's guaranteed matters even more if the policy is being used to collateralize a loan. If you're looking at a premium-financed policy , the loan doesn't wait for the non-guaranteed column to catch up — it's due on its own schedule regardless of how the crediting performs.

For a deeper explanation of how the internal mechanics function, read our comprehensive guide on how indexed universal life builds cash value.

What Are the Risks in a Fixed Universal Life Illustration?

The non-guaranteed column reflects a current credited rate that the insurer sets periodically, subject to a guaranteed minimum. If interest rates fall — as they did for an extended period and may do again — the carrier may reduce the credited rate, which reduces the interest your cash value earns. Cost of insurance charges continue regardless. The illustration assumes the current credited rate holds. It may not.

The Assumption Behind the Assumption: Illustrated Rates and Who Chooses Them

One thing that rarely gets discussed in agent presentations is that the non-guaranteed column of an illustration is not generated by the market or by the carrier alone. In many products, the agent makes choices when running the software that directly affect what the illustration shows.

For universal life products — fixed, indexed, or variable — the illustration software allows the agent to input an assumed credited rate. Regulators set a ceiling on how high this can go, but within that ceiling, the agent has discretion. An illustration run at the regulatory maximum will look different from one run at a conservative mid-range assumption. The policy is the same. The premiums are the same. The numbers look very different.

This is not fraud. It is a feature of how illustrations work, and it is precisely why regulators require the guaranteed column to be shown alongside it. But it does mean that two illustrations from two different agents on the same type of policy can look very different — not because the policies are different, but because the assumptions are different.

When you are comparing illustrations from multiple agents or multiple products, the only fair comparison is guaranteed column to guaranteed column. Everything else is scenario against scenario, and the scenarios are not standardized.

How to Read an Illustration: A Row-by-Row Guide

Illustrations vary in format by carrier, but most will show you the following columns, typically broken out year by year for the life of the policy. Here is what each one is telling you — and what it is not.

Illustration Column	What It Is Projecting	The Red Flag to Watch For
Policy Year / Insured Age	How old the insured is in each projection year. Cost of insurance charges increase as the insured ages.	A policy that looks healthy at age 45 may tell a very different story at age 70 if the underlying assumptions have not held.
Premium Outlay	The amount you are committing to pay in that year. Fixed in whole life; flexible in universal life products.	If you pay less than illustrated in a universal life product, the policy will not perform as shown and may lapse early.
Death Benefit	The amount paid to your beneficiary if the insured dies in that policy year.	Some policies show a level death benefit; others show one that grows with cash value. These have different premium structures — know which one you have. Learn what happens to cash value at death.
Cash Value / Account Value	The amount accumulating inside the policy. Guaranteed column = contractual minimums. Non-guaranteed column = scenario assumptions.	These two numbers can diverge significantly in later years — which is exactly why both are required to be shown side by side.
Net Surrender Value / Cash Surrender Value	What you would actually receive if you canceled the policy today. Lower than cash value in early years due to surrender charges or acquisition cost recovery.	The gap between cash value and surrender value is one of the most common sources of buyer confusion. See the full breakdown here.
Illustrated Income / Withdrawals / Loans	Hypothetical distributions shown in the non-guaranteed column only, assuming the policy has performed at the illustrated rate through the accumulation phase.	If the policy has underperformed, the income available will be less — or the policy may be at risk of lapsing during the distribution years. Loans vs. withdrawals: the tax difference matters.

Questions to Ask Before You Sign

Here is a short list of questions that will tell you very quickly whether you are working with an advisor who understands what they are showing you — and whether the product you are being shown fits your situation.

Can you show me this illustration run at the guaranteed assumptions only? This is the single most useful question you can ask. If the policy makes sense to you at the guaranteed numbers — if the death benefit protection alone justifies the cost — you have a product with real value. If the guaranteed column looks too thin to justify the premium, you need to understand exactly how confident the agent is in the non-guaranteed assumptions and why.

What credited rate are you assuming in the non-guaranteed column, and why? For universal life products, the agent should be able to tell you the exact assumed rate and explain why they chose it. Ask what the illustration looks like at one or two percentage points lower. If a modest reduction in the assumed rate changes the outcome dramatically, the policy is more sensitive to performance than the presentation suggested.

How does the cost of insurance affect this policy as I get older? For universal life products especially, cost of insurance charges increase with age. The illustration assumes the credited rate keeps pace. Ask the agent to show you what happens to the policy's health if the credited rate underperforms the assumed rate for five consecutive years starting at age 60. That stress test will tell you more than the base illustration.

What is the minimum premium needed to keep this policy in force to age 90? This forces the conversation away from the optimistic scenario and toward the contractual structure. A well-designed policy should be fundable at an amount you can sustain.

What are the surrender charges and for how long? For universal life products, surrender charges can persist for ten to fifteen years. If there is any possibility you may need access to the cash value before the surrender charge period ends, this matters.

A Word About Your Agent

I want to be direct about something, because I think it matters.

Most agents who present life insurance illustrations enthusiastically are not trying to mislead you. Many of them have not been taught to make a clean distinction between what is guaranteed and what is assumed, because the illustration software does not teach it — it just runs the numbers. The training many agents receive focuses on the features and benefits of the product, not on the epistemology of the projection model.

I have written continuing education courses on how these products work. I have taught ethics to licensed agents. The gap between what the illustration shows and what the agent can actually explain about its assumptions is one of the most consistent issues I have encountered in this industry over more than twenty years.

That is not a reason to distrust your agent. It is a reason to ask better questions — and now you have them. A good advisor will welcome every question on this list. They will not be defensive. They will not rush past the guaranteed column. They will show you the stress test without being asked twice.

If your agent cannot walk you through the guaranteed column clearly, cannot explain the assumed credited rate and why they chose it, or cannot show you a conservative scenario without being pushed, those are meaningful signals about the relationship you would be entering into.

Compare promises, not projections.

If You Already Own a Policy: The In-Force Illustration

Everything in this article applies to new policy illustrations. But if you already own a cash value policy — whole life, IUL, or universal life — the relevant document is called an in-force illustration. This is a projection of your existing policy's performance going forward, based on current values and current assumptions. It will tell you whether the policy is on track, underfunded, or at risk of lapsing before your intended holding period ends.

You can request an in-force illustration from your carrier at any time. It is worth doing every three to five years — or any time you are considering a change to your premium payments. For a full explanation of what to look for and how to request one, see our article on what is an in-force illustration and how to request one.

The Bottom Line

A life insurance illustration is one of the most information-dense documents you will encounter in the financial planning process. It contains both a contractual commitment and a projection, presented side by side, and they are not always easy to tell apart at first glance.

The rule is simple: start with the guaranteed column. Read it before anything else. Understand what the company has actually promised. Then, and only then, look at the non-guaranteed column — not as a prediction, but as a scenario that reflects what might happen if current conditions hold.

The agent who showed you a specific number and used the word will was not necessarily wrong about the product. They may have been wrong about the word. The product may deliver everything they described. The illustration may prove conservative. But the appropriate word — always, for any non-guaranteed projection — is may.

You are entitled to know the difference. And now you do.

If you are in the process of evaluating a cash value policy and want to understand whether it fits your overall plan — not just what the illustration shows — we cover the full decision framework in our article on whether to keep, surrender, or replace a life insurance policy, and the broader context lives in our guide to how life insurance cash value works.

Kevin Wenke is a CFP® and CLU® with more than 23 years of experience in life insurance and financial planning. He is the principal of Decision Tree Insurance LLC. This article is educational in nature and does not constitute a recommendation to purchase or surrender any specific insurance product. All insurance products are subject to the terms and conditions of the issuing carrier. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.