Policy Logistics FAQ: How to Read a Life Insurance Policy and More

Buying and understanding whole life insurance is a wonderful journey that can take some time… and a lot of new terminology. Having an agent who can help you through the process is invaluable. Even so, sometimes you’ll have questions and want a quick answer, so we’ve compiled this FAQ. Want to know more about policy logistics? Refer to this page to get a refresh on terminology, structure, how to read a life insurance policy, and more.

How to Read a Life Insurance Policy Illustration

This section contains answers to common questions about how to read and interpret a life insurance illustration from your agent. 

What’s the Difference Between Guaranteed Cash Value and Non-Guaranteed Cash Value Columns?

On your life insurance illustration, you’ll see two cash value columns: guaranteed and non-guaranteed. 

The guaranteed column shows the absolute minimum cash value you’re guaranteed to have, based on your policy. This column assumes that the company pays no dividends and that you haven’t added any cash PUAs. The non-guaranteed column is a projection of the expected dividends and maximum PUAs.

Insurance companies have a responsibility to show you both guaranteed numbers and non-guaranteed projections, in order to manage expectations. However, the guaranteed column assumes that the company never profits, and you never pay PUAs. Since the major mutual companies have a strong history of paying dividends, and many people prefer to add PUAs, you can expect the non-guaranteed column to be a good representation of your actual cash value. 

Why Does My Illustration Look Inaccurate?

Because of the guaranteed and non-guaranteed columns, your illustration actually becomes inaccurate any time your actual cash value increases. This is because all PUAs and dividends, once applied, become a part of your new guaranteed floor. So not only does next year’s guaranteed column become inaccurate, but so does the non-guaranteed. You can see why this gets a bit confusing.

Another reason the columns can quickly go out-of-date is that illustrations rely on the current declared dividend. Yet, insurance companies declare a new dividend each year. A high or low dividend this year doesn’t necessarily have any bearing on future dividends. As soon as the next dividend is declared, your illustration will change.

This is why we encourage you to take the illustration as a guide, not a rule. After all, you can expect it to do better than the guarantees—thanks to PUAs and reliable dividends—you just can’t estimate it down to the penny. If you ever have questions, we’re always happy to provide clients with an in-force illustration.

What is the Difference Between Scheduled PUA and Unscheduled PUA?

When you have “scheduled” PUA, this simply means that it will be included with your annual statement/invoice, along with the base premium you pay. When you set up your account to pay automatically, the scheduled PUA is included. 

Unscheduled PUA is an additional PUA that you’re allowed to contribute, up to the taxable MEC limit. The difference is that this contribution is not drafted. In other words, this is optional and flexible. If you want to contribute more in some years, you can. If you don’t want to contribute anything above your scheduled PUAs, you don’t have to. 

This is actually a feature of your policy that you can modify by request. While you must contribute a minimum of $250 a year to keep your PUA rider active, you can schedule as much as you want up to the MEC limit. 

Policy Mechanics: Understanding Life Insurance Policies

When you open a policy, you’ll have to make some choices about the design and structure of your policy. Here are some mechanics to learn on your journey to understanding life insurance policies. 

Are There Different Premium Payment Modes?

When you open a policy, you get to choose how often you’d like to make premium payments. You can pay annually, quarterly, or monthly, with annual being the lowest cost. 

Monthly is not the annual price divided by 12. It is actually a modal factor of the current base premium, multiplied by 0.085833. Even so, many people are happy to opt for a monthly premium if they’re not interested in setting aside annual premiums on their own. 

If you choose monthly, the insurance company generally drafts the money on the 15th of the month or the next closest business day. The monthly draft can only include scheduled PUA, not unscheduled.  

What is Backdating?

When you apply for a policy, you can backdate it as far as 6 months. There are several reasons you might find this advantageous. For example, if your birthday was in the last six months, you can backdate your policy to just before. Since your age factors into your premium, you may get a slightly better death benefit for the premium you want to pay, or vice versa. 

Another advantage of backdating is the ability to add more cash to your policy from the beginning. When you backdate your policy, your policy renewal date will be that much closer. So instead of waiting 12 months to pay a premium, you would only need to wait 6 months. If you choose to pay monthly, you’ll also pay the premium on those months you’ve backdated. 

What is My Insurance Age?

Your insurance age is the age the insurance company considers you to be on your policy at time of issue. This age is accelerated by 6 months. This means that 6 months prior to or after your birthday, you are actually considered the age of your next birthdate. 

For example, if you’re turning 40 in December, the insurance company will already consider you to be 40 by June. This is why backdating your policy can be beneficial. If you apply for a policy in October, backdating it to April can make your insurance age 39. 

Does My Application Ever Expire? 

Yes, actually. Once you begin the application process, it’s a good idea to keep the ball rolling. Once your application is signed, it’s good for 6 months. After this point, you’ll need to complete and sign a new application, if you haven’t completed the process. 

Your physical exam is actually good for 12 months from the nurse’s visit. This gives you some leeway. However, it’s good to keep making strides toward completing your application regardless. 

Glossary of Policy Terms

As you go through the application process, you may see or hear terms you’re unfamiliar with. Here’s a list of terms that you might encounter, and their definitions. 


You’ll hear the term PUA frequently, which stands for paid-up additions. This is additional money that you can contribute to your policy, which directly affects your cash value and death benefit. 


PPIA stands for Prepaid Premium Account. This is an account you can set up to store your future premium, as well as scheduled PUAs. It’s possible to either earn interest or receive a discount, depending on how many years you pay in advance. Doing this will not MEC your policy, because the company only takes money from the account when a premium is due, as scheduled. 

Guaranteed Issue Offer

This is an offer from the insurance company to issue additional coverage through a new whole life insurance policy up to a certain amount, just by requesting it. There’s no additional approval process necessary. 

Take Advantage

This is an offer from the insurance company to get additional coverage through a new whole life insurance policy with no medical exam, through a simplified and abbreviated approval process. 

Term Conversion

This is your right to switch all or a portion of your convertible term insurance policy into whole life insurance just by requesting it, no approval necessary. Your new whole life policy will be issued at your current age and the same approval rating as your term insurance policy. 

Health Certificate

If enough time has passed the insurance company will ask you to sign a health certificate, which certifies that your health is the same as when you first began the application process, and no significant changes have occurred. 


This acknowledges any changes that have occurred from the application to the final approval, and requires your signature when the policy is placed. 

Policy Delivery Receipt

This is the document you sign when you’ve officially received your life insurance contract, which proves the delivery and your acceptance. There is a time limit on this, and if not signed within that limit, you may be required to undergo additional underwriting approval.


Ownership determines who owns and can access this policy, and is the person who is responsible for paying premiums. This is often the same person that’s being insured by the policy, but not always. 

For example, you can insure your parent. Your parent will have to go through the underwriting and approval, yet you pay the premiums. 

You can change ownership of a policy at any time, as long as the new owner has an insurable interest. 

Insurable Interest

In order to take an insurance policy out on someone, you have to have an insurable interest. This is a relationship with demonstrable proof that you would be negatively impacted financially by the insured person’s death. 

If you’re immediate family members, for example, you almost always have an insurable interest. Some employers have an insurable interest in key employees that would be difficult to replace. Business partners can also have an insurable interest. 


Your beneficiaries are your heirs or the people who receive the death benefit in the instance of the insured’s death. If you have a policy on yourself, you may choose to declare your spouse and children as your beneficiaries. 

Beneficiaries can be changed at any time, and it’s a good idea to do so as soon as possible. For example, if you get a divorce and have no children, or those children are all adults, you may find it prudent to remove your ex from the beneficiary list as soon as possible. If you have young children, keeping your ex as a beneficiary may still be your ideal choice. Or you could name a trust as the beneficiary.

Have More Questions?

Getting whole life insurance can be a process, and our aim is to make it as simple and painless as possible. We work to assist you through every step, so you get the perfect policy for your lifestyle and objectives. 

If you’re going through the approval process and have questions, we’re happy to help at any time. We invite you to send your questions to we*****@pr****************.com

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