It's not a secret that a lot of carriers are putting out egregious illustrations on hypothetical performance projections. Some of these show 20% return averages OR MORE!

2026 will mark another big win for these sleezy tactics, but why? Illustrations use the last 10 years of back casted return projections. Right now it is currently 2015 - 2024, next year it will be 2016 - 2025.

Why is that going to make a huge difference? 2015 was essentially a flat or 0% year for most equity based indexes as well as the bond markets. This tames down a lot of illustrations when you slap a 0% return on year 1.

Well... they will now start at the 2016 mark where we saw a double digit return on many equity indexes and nice hop on the Bond side of things. This may not seem like a big difference, but it is.

These calculations are flawed, but it's across the entire industry. I used to get very passionate about this exact topic relating to FIAs and frankly, I've exerted way too much energy educating others. With over 200+ indexes currently being used in real products, it's more important than ever that agents and advisors understand what the heck they're getting into, and clients deserve better!!

Many insurance companies can show hypothetical illustrations based on back tested results at current participation rates. This gives a very inaccurate picture of future performance and can be very misleading for prospects and agents, but a great marketing tool for the insurance company.

Illustrations of annuity payouts and returns are done very dishonestly in the industry starting from the insurance companies themselves. Below are some keys people need to be aware of..

The Main Problem With FIA Illustrations

... lets make it plural, here's a few:

1. Backtests the last 10 years. (Literally best decade you could ask for)

2. Uses the current Par or Cap rate in the backtest without any rate fluctuations. (insanely dishonest unless its a locked rate)

3. Uses backcasted guesses on Indexes that have no actual history. (Most the time)

In my opinion, regulation needs to change to only allow illustration on Indexes that have actual history.

Further, we should only allow the Par or Cap illustration based on what the insurance company could afford each year historically.

These rates change based on the Bond Yields they can get in there general account.They also change based on the price of the options...

So what would that look like?

Instead of saying, "Hey we can afford an 8% cap today, so let's show that historically", we change it to, "Illustrate yearly based on the budget and price at that time"... here's an example:

Year 1 Budget 3% Buys a 50% Par

Year 2 Budget 3.5% Buys a 65% Par

Year 3 Budget 2.5% Buys a 35% Par

Year 4 Budget 4% Buys a 80% Par

Year 5 Budget 4% Buys a 80% Par

So if the returns historically for those 5 years were 10% every year, then the illustration would be :

Year 1 - 5%

Year 2 - 6.5%

Year 3 - 3.5%

Year 4 - 8%

Year 5 - 8%

ALSO, don't allow any illustration on performance after the surrender period. Just a disclosure saying rates are subject to drastically change after surrender.