What does a life insurance illustration leave out?

How it works

What it does contain, and what should be read first, is the guaranteed column. Everything beside that column is conditional on assumptions printed elsewhere in the same document, usually in smaller type than the values themselves.

The cost or the catch

two columns, two different documents

How to read an illustration honestly

1. 01Read the guaranteed column on its own, first
2. 02Treat the other column as an assumption
3. 03Ask which dividend scale the projection uses
4. 04Ask what changes if that scale is reduced
5. 05A projection is not a promise

It usually shows no cost breakdown, no premium tax line, no compensation figure and no alternative scale. The contract governs in every case where the two differ, which is why the policy wording is the document that settles a question.

What to ask the insurer for

A policyholder who wants the missing breakdown can ask the insurer directly, who holds it even when the document handed over at the time of sale does not display it. Compensation paid on a contract is not a secret; it is simply absent from a document built to show a trajectory rather than an invoice. Putting the request in writing, and keeping the answer, avoids having to ask the same question again the following year, once the person who sold the contract may no longer be reachable.

A verbal request is easily lost inside a longer conversation, while a written one leaves a clear record of what was asked and what was answered, which matters most exactly when the answer is needed again years later.

Keeping that same written record for next year's review avoids starting the same conversation from nothing.

It is worth the extra few minutes even when the meeting already feels long.

A useful way to work through this list is to take it item by item with whoever prepared the illustration, asking for a written answer to each rather than a spoken one. A table of numbers reads quickly, but every column rests on an assumption the page does not always name in plain language: what the column assumes, how often that assumption has changed in the past, and what happens to the rest of the table if it changes again. None of this is a criticism of the document itself, an illustration was never meant to predict the future. It is a reminder that the page is a starting point for questions, not an answer on its own. None of this changes what the household's own income has to support in the first place, and how stable that income needs to be is answered in how stable does my income need to be.

Who prepares an illustration, and who is responsible for it

different taxation, different timing

Where retirement income comes from

1. 01Government benefits
2. 02Registered plans
3. 03Savings held outside a registered plan
4. 04Employer plans, where there is one
5. 05A business or a property, for many households

An advisor prepares the specific illustration using software the insurer supplies and licenses for that purpose, entering the applicant's age, the requested coverage and the premium under consideration, while the insurer is the one who built the underlying assumptions into that software and who bears responsibility for the guaranteed figures it produces. Neither party is responsible for what the other does: the advisor cannot change the guaranteed column, and the insurer does not control which scenario the advisor chooses to print and hand over.

A compliance department within the insurer typically reviews the illustration format itself, though not the specific numbers run for a specific applicant, before that format is approved for use, which is why the layout looks broadly similar across advisors selling the same insurer's product but can look quite different from one insurer to another.

What changes from one illustration to the next

different timelines, different failures

Two questions inside a succession plan

1. 01A succession planThe two run on different timelines, and they fail in different ways.
2. 02Who will lead the businessA plan covering only leadership leaves the harder one open.
3. 03Who will own the businessThe ownership question is the one that is usually left open.

Every insurer builds its own illustration software, so the same request run through two different companies can present the guaranteed and non guaranteed columns in different layouts, different type sizes, and different orders on the page, even though the disclosure rules both are following point at the same underlying idea. The assumptions behind the non guaranteed column also change over time as an insurer's own dividend scale history changes, so an illustration printed several years ago no longer reflects what the same insurer would illustrate today.

The year the contract was applied for matters as well, since a contract issued under an earlier dividend scale or an earlier product design can behave differently going forward than one issued this year, regardless of what either illustration originally showed at the time of application.

Who this gap matters to most, and who it barely touches

It matters most to someone comparing two contracts from two different insurers side by side, since the differing formats and differing assumptions make an apples to apples reading harder than it looks, and to someone relying on an illustration printed years ago rather than a current one. It matters least to someone who has already obtained the guaranteed column directly and is not using the illustrated column to decide anything, since for that reader the missing detail was never load bearing in the first place.

A household comparing a participating contract against an entirely different kind of product should be especially cautious, since the two illustrations may not even present figures on a comparable basis at all.

What this page will not decide

four rules that are frequently mixed up

Tax when a benefit is paid on death

1. A life insurance benefit reaches a named beneficiary untaxed
2. The public pension death benefit is taxable to the recipient
3. Employer death benefits are exempt up to a stated limit
4. Canada has no estate tax
5. The deemed disposition at death can still be large

This page does not tell a reader whether a specific illustration's assumptions are reasonable for that specific insurer going forward, since that judgment depends on a dividend scale history this page does not hold and should not guess at. An accountant can help a household interpret what a projected figure would mean for its own tax position once the insurer supplies the actual numbers in writing.

The advisor who prepared the illustration is compensated by commission from the insurer whether or not the contract proceeds at the scale shown, and that fact belongs beside the illustration itself rather than instead of the questions this page has already set out to ask.

The plain bad news

The missing cost breakdown matters most at exactly the moment a policyholder is deciding whether to surrender or replace a contract, which is also the moment an illustration is least likely to be re-examined carefully, since the conversation has usually already moved on to what comes next. A household that never asked for the underlying cost figures at the time of purchase can find, years later, that understanding what was actually paid for requires reconstructing information the insurer holds but the household never requested in writing.

An illustration that assumes the current scale continues for decades is not wrong to make that assumption; it is simply not a guarantee, and a household that treated the illustrated column as a plan rather than as one scenario among several can be caught unprepared when a dividend scale reduction moves every non guaranteed figure at once. The guaranteed column was always the more honest starting point, and a household that never located it was working from the wrong number the entire time.

None of this is unique to any one insurer or any one advisor; it is a feature of how illustrations are built industry wide, which is exactly why asking the same questions of every illustration, regardless of who prepared it, protects a household better than trusting any single document on its own.

How this differs once a contract is already in force

A new business illustration, prepared before a contract exists, is not the same document as an in force illustration requested on a contract already running, since the second reflects what has actually happened inside that specific contract rather than a projection made before the first premium was ever paid. What an in force illustration actually shows is worth reading before assuming the two documents answer the same question.

A household comparing where it expected to be at issue against where an in force illustration now shows it standing is making a more useful comparison than comparing two new business illustrations from different points in time, since only the in force version reflects the dividend scale actually declared in each of the intervening years rather than an assumption made before any of them occurred.