What is the difference between the guaranteed column and the illustrated column?

How it works

protection arranged late is not protection

Asset protection turns on timing

1. 01Statutory exemptions under provincial law
2. 02Ownership structures arranged in advance
3. 03Insurance with a properly named beneficiary
4. 04A transfer made to defeat a known creditor can be reversed
5. 05Protection put in place early is the protection that holds

Both sets of numbers leave one piece of software on one afternoon. The lower set uses only the pricing basis written into the contract, so the insurer owes it in a decade when nothing goes its way. The higher set adds one input, that this year's scale is declared again every year.

Both figures are produced by the same actuarial software inside the insurer, not by the person presenting them. That software generates the guaranteed column directly from the pricing basis filed with the contract, a set of assumptions locked in at issue and never revisited to your advantage or otherwise. The illustrated column is produced by rerunning that same software with one additional instruction: assume the scale of participations declared for the current year continues unchanged for every year that follows. Whether a proposal shows one column or several, and how those columns are labelled, is decided by the insurer, not by the representative sitting across the table, and it can differ between two companies quoting the same design.

What separates the two lines also varies by product and by insurer in ways a reader cannot see from the shape of the graph alone. A participating whole life contract carries both columns because it carries a scale of participations to assume something about. A universal life contract or a non participating policy has no such scale, so it never prints this second line at all, whatever else its illustration shows. The scale itself is reset every year by the insurer that issued the contract, so the width of the gap on a document run this year says nothing about the width that would appear on the same contract run five years from now.

The cost or the catch

a notional account, not a bank balance

The Capital Dividend Account

1. 01A notional tax account of a private Canadian corporation
2. 02It records amounts the corporation received without tax
3. 03A death benefit less the adjusted cost basis credits it
4. 04Balances can be paid to shareholders as capital dividends
5. 05The credit depends entirely on the ownership structure

The distance between the two lines is the size of that input, and readers take it for the size of a benefit. A proposal quoted from the upper line and delivered on the lower one has not failed. Carry the lower figure out of the meeting, because it is the only one anybody owes.

The bad news is not that the higher line is dishonest. It is that almost nobody reading it for the first time understands how much of it rests on an assumption that has no fixed duration. A household that plans a spending decision, a debt payoff or a retirement date around the illustrated line rather than the guaranteed one has built that plan on a number the insurer is free to revise downward at its next declaration, and has done so without anyone telling them the plan depended on that number holding.

Comparing two illustrations from different insurers by their illustrated columns alone compounds the problem, because a wider gap can mean a more generous current scale, a longer assumed holding period, or simply a different house style for how aggressively the assumption is drawn, and the document does not say which of those reasons explains the gap.

What to ask, and of whom

Four questions belong to whoever prepared the illustration, and a straight answer to each is available on request. Asking for the guaranteed value at years one, five, ten and twenty, set beside the premiums paid by each of those points, shows the shape of the floor without any assumption attached to it. Asking which column a figure quoted in conversation actually came from stops a guaranteed number and an illustrated one from being repeated back as if they were the same kind of promise.

Two further requests belong to the insurer directly rather than to the representative. Asking to see the assumptions page, which names the scale in force on the day the document was produced, identifies exactly what the illustrated line is assuming. And asking for the same proposal run a second time at a reduced scale, where the insurer's software allows it, shows what the contract looks like if the assumption does not hold, which is the version most illustrations are never asked to show.

Who this matters to most

two different questions about one dollar

Recovery is not the same as return

1. Return asks what the money earned
2. Recovery asks whether the money came back
3. Capital returns through the income an asset produces
4. Capital returns through the eventual sale
5. Capital returns through the deductions its cost permits

This distinction matters most to a buyer comparing two or more proposals side by side, since the illustrated column is exactly where two competing designs are made to look most different from each other, and to anyone planning a specific future use of the money, since a plan timed to an illustrated figure is a plan timed to an assumption rather than to a contractual right.

It matters far less to an owner of a universal life or a non participating contract, since neither carries a scale of participations to illustrate in the first place, and somewhat less to an owner who has already decided to hold a contract for decades regardless of what either column shows, since a long enough horizon gives a below scale year time to be followed by others.

What this page will not tell you

Which figure a specific contract will actually produce in year fifteen is not something this page, or any illustration, can tell a reader in advance, because that figure depends on scale declarations the insurer has not yet made.

What is guaranteed is fixed by the contract's own wording, not by either column of the ledger, and reading that wording against the guaranteed table is a task for the representative servicing the contract or for the insurer's own service department, not for a general explanation of how the two columns are built.