What should I ask about an illustration before I sign?

How it works

residence decides almost everything

Living in one province, working in another

1. 01Your advisor must be licensed where you live
2. 02Your estate is settled under your province of residence
3. 03Residence on the last day of the year decides your return
4. 04Where you work decides which pension plan applies

Each question changes one input and shows what moves. The lower scale run separates obligation from assumption. The guaranteed row gives the floor in dollars. The third separates the premium you owe from the deposit you choose. The fourth exposes how much rests on money you have not committed.

The document itself is produced by software the insurer supplies, not by the advisor working from a blank page. The Financial Security Advisor enters the assumptions, the face amount, the funding pattern, the loan strategy under review, and the software applies the insurer's current participation scale and current cost of insurance schedule to produce every column on the page. Two advisors sitting at two different insurers, illustrating what looks like the same idea, will produce two different pages, because each insurer's software runs its own scale and its own internal assumptions, none of which is visible from outside that one illustration.

What the illustration allows an advisor to vary differs from one insurer to the next as well. Some systems let the advisor toggle the loan interest rate charged against an outstanding advance and watch the effect ripple through thirty years of projected values in a single run. Others fix that rate at whatever the insurer currently charges and require a separate request, sometimes answered by a head office department rather than the advisor at the table, before a different rate can be modeled at all. Knowing which kind of system produced the page in front of you changes how much weight a single run deserves.

The wording printed around the numbers also varies by province, since the disclosure language a contract must carry in Quebec is not identical to what applies elsewhere in Canada, and the same numeric run can arrive with a different set of surrounding cautions depending on where the contract is issued. None of this changes the arithmetic underneath the page, but it does mean that comparing an illustration a friend received in another province against one prepared for you is comparing two documents that are not actually printed the same way.

The cost or the catch

regulated as insurance, in every province

Why this is not an investment

1. It is a contract that pays a benefit on death
2. It is regulated as insurance under provincial law
3. Contractual value and dividends are insurance features
4. Presenting it as an investment misdescribes what it is

The fifth is the one that gets skipped and it matters most, because a contract ended in year six is where the real losses in this field are recorded. Asking it aloud also tells you something about the person answering. Anyone who cannot describe how the arrangement fails has not described it. One such failure runs through an advance left outstanding and never repaid, and what happens if I do not repay sets out exactly where that leads.

The scale printed on every current run is exactly that, current, and current is not the same as promised. Participations are declared by the insurer's board each year based on the insurer's own investment experience, mortality experience, and expenses, and a run showing the scale in effect today says nothing binding about the scale that will be in effect in year six, year sixteen, or year thirty. An illustration is a snapshot of one insurer's opinion on one afternoon, extended forward across decades using no information the insurer does not yet have.

This is exactly why the lower scale run exists and exactly why skipping it is the costlier of the two omissions on this page. A run built entirely at the current scale, with no lower alternative shown alongside it, tells a reader nothing about what the contract still delivers if the scale declines, and a contract funded on the assumption that today's scale continues indefinitely can leave a much thinner position at the point an outstanding loan against it is expected to be serviced than the original page ever suggested.

How to ask these questions

Writing the five questions down before the meeting, rather than improvising them on the spot, guarantees none is forgotten under the pressure of a signature expected that same day.

Keeping a copy of each written answer with the other contract documents makes it possible to reread them years later, at the point when a question about one of them resurfaces and memory of the original meeting has already faded.

Asking all five in a single meeting, rather than spread across several, also makes it possible to compare the answers against each other while they are still fresh.

It is worth doing even when the first meeting already feels long.

Five minutes is almost always enough for all five.

What to ask, and of whom

the cost that never appears on a statement

Opportunity cost, and why it stays invisible

1. 01The value of the alternative you gave up
2. 02The one real cost that never appears on a statement
3. 03A comparison is incomplete until the alternative is named
4. 04Every decision about capital carries one

Some of these five questions belong with the advisor sitting across the table, since the advisor is the one who chose which inputs to enter and can explain the reasoning behind the funding pattern shown. Others belong with the insurer directly, particularly anything touching the mechanics of a policy loan, since the advisor does not set the loan interest rate, does not set the participation scale, and does not decide how quickly a missed premium moves a contract toward lapse; the insurer's own policy administration department is the authority on all three, and a call placed there produces an answer no advisor is positioned to overrule.

A written illustration comparing the current scale run against a lower scale run, both covering the same number of years, is something to ask for by name rather than assume comes standard, since not every advisor volunteers the lower run unless a client specifically requests it. Asking for the annual statement the insurer will send once the contract is in force, and asking how its numbers should be compared back against the original illustration's projected column for that same year, is a question worth asking before signing, not after the first statement arrives and the two pages do not obviously line up.

Who this affects most, and who it barely touches

planning one leaves the other open

Two halves of an owner's retirement

1. 01No pension and no employer match
2. 02Most of the wealth sits in one illiquid asset
3. 03Building assets outside the business
4. 04Arranging an exit that turns the business into money
5. 05Planning only one half leaves the harder one open

This matters most to a buyer relying on the arrangement to fund a business need years out, a buy sell obligation, a key person exposure, or a planned retirement income stream, since a scale that runs lower than illustrated changes the year in which the plan actually becomes usable for that purpose. It matters far less to a buyer purchasing coverage purely for a death benefit with no funding strategy layered on top, since a simpler contract of that kind carries fewer moving assumptions for a lower scale to disturb in the first place.

It also matters more to anyone funding at the legislated maximum the contract allows, since a design running close to that ceiling has less room to absorb a lower scale without the funding pattern itself needing to be revisited, and less to someone funding well under that ceiling, where a lower scale simply slows growth rather than forcing a decision.

What this page will not tell you

This page does not tell you what scale your own insurer is likely to declare in a future year, since no one, including the insurer's own board before it meets, knows that in advance, and a page claiming otherwise would be inventing a figure this practice has no basis for stating. It also does not tell you whether the funding pattern shown on your own illustration is the right one for your own cash flow, since that judgment depends on your own income, your own other obligations, and your own tolerance for a lower scale outcome, all of which belong in the design meeting with your own Financial Security Advisor rather than on a general page written before your own numbers exist.