Key Takeaways
- If you’re being shown an indexed life insurance or annuity illustration with projected annual returns in the double digits, ask the agent to pull the guaranteed column. That’s the contractual floor, and it often tells a very different story than the projected one. The NAIC’s own working group is now formally asking how to stop illustrations from functioning as de facto performance forecasts.
The NAIC’s Life Insurance and Annuities Illustrations (A) Working Group has a comment deadline of COB July 17, 2026, on two exposure drafts that could reshape how every indexed life and annuity product gets illustrated to consumers. If you’ve ever sat across from an agent showing you a projection where an indexed universal life policy funds your retirement with tax-free income for 30 years, this regulatory process is directly about what that illustration is allowed to show.
The working group, chaired by Minnesota and operating under the NAIC’s Life Insurance and Annuities (A) Committee, is simultaneously asking two questions. First: what changes should be made to Model 245, the NAIC’s Annuity Disclosure Model Regulation, to address regulatory concerns about illustrated rates and transparency? Second: should a new actuarial guideline serve as a stopgap while states work through the multi-year process of adopting any revised model?
The American Council of Life Insurers has already answered the second question: no. Carrie Haughawout, ACLI’s senior vice president of life insurance and regulatory policy, told the working group during a June call that the industry believes there are alternatives to an actuarial guideline that should be considered instead. That objection matters because actuarial guidelines move faster than model law revisions, and faster movement means faster compliance costs.
Why Model #582 Is the Problem Underneath the Problem
To understand why this working group exists, you have to understand the 30-year-old foundation it’s working around. The NAIC adopted Model #582, the Life Insurance Illustrations Model Regulation, in 1995. That regulation was built for a world of whole-life and universal-life products that credited interest based on declared rates or a disciplined current scale. Numbers with actual history behind them. It didn’t contemplate indexed products that tie credited interest to a proprietary index, backcast to favor performance.
That gap is what drove AG 49 in 2015, AG 49-A in 2020, and the AG 49-A revisions in 2023. Each one was described, at the time, as a fix. Each one was outpaced by new product designs within a few years. The LIAIWG’s current charge is to figure out whether the right path is another targeted actuarial guideline or an actual rewrite of Model #582 itself. The working group chair has estimated that a full model rewrite could take three years.
The NAIC’s Exposure Drafts page confirms that the current open questions include whether to start from Model 245 language, adapt AG 49-A, or start from scratch, and specifically whether the stopgap approach of an actuarial guideline is workable before states can adopt whatever comes next.
The precipitating concern isn’t subtle. Regulators have observed indexed annuity illustrations showing sustained annual returns in the 10% to 25% range. Some of those illustrations are backed by proprietary indices with no meaningful real-world history. Only backcasted data engineered to show favorable performance. Model 245 requires 10 years of actual index history for illustrations. Proprietary index designers have gotten around that requirement by creating new indices and then backcasting them. The working group’s job is to close that gap.
What This Means When an Agent Shows You a Projection
Here’s what most buyers don’t know about the illustration sitting in front of them. The projected column in an indexed universal life or indexed annuity illustration is what the carrier’s illustration software calculates under current NAIC-permitted assumptions: the current cap rate, participation rate, and index. The guaranteed column is the contractual floor. What the policy will actually deliver if everything non-guaranteed moves against you.
When I was working the desk at an independent agency, IUL illustrations at 6.5% were standard. Run that same illustration at the guaranteed column, and the projected cash value often dropped by half or more over a 30-year horizon. That gap is the core of what regulators are trying to address. The illustration actuary certifies annually that the illustrated scale is consistent with recent actual experience. But “recent actual experience” for a 2-year-old proprietary index is a very short track record, and the certification doesn’t make the projection contractually binding.
Model #582, as written, requires that a basic illustration show both guaranteed and non-guaranteed elements. What it doesn’t do is prevent the non-guaranteed column from projecting a return that is almost certainly unachievable over the full policy term. That’s the structural problem the LIAIWG is now formally addressing.
For the best life insurance buyer sitting across from an agent today, the practical action is this: ask to see the guaranteed illustration. Not the moderate scenario. The guaranteed column. If the policy doesn’t perform acceptably on the guaranteed column, it probably shouldn’t be sold as a retirement funding vehicle.
The Stopgap Fight and What It Signals
The industry’s resistance to the actuarial guideline stopgap is worth understanding. Model law changes require state-by-state adoption, which takes years. An actuarial guideline issued by the NAIC can apply immediately. Illustration actuaries are required to certify compliance with applicable NAIC guidelines, and non-compliant illustrations are an actionable violation under Model #582. That’s why the ACLI prefers to start with Model 245 modifications and push for broader state adoption rather than accept a new binding actuarial guideline in the interim.
The NAIC’s own comments from the working group suggest that regulators want a short-term solution in place within a year, with a longer-term solution developed afterward. The July 17 comment deadline is part of that accelerated pace. The Life Insurance and Annuities (A) Committee must sign off before Model 245 can be formally reopened, and the committee is also being asked to consider Valuation Manual amendments at its July 13, 2026, meeting.
For anyone currently being pitched an indexed product with a double-digit illustrated return, the implication is concrete. Whatever comes out of this process will make those illustrations harder to show. The product doesn’t change. The caps and participation rates that drive actual credited interest remain unchanged. Only the illustration changes. But the illustration drives the sale, and it’s the document the buyer relies on when they sign the application.
Anyone shopping for the best term life insurance is largely insulated from this debate. Term illustrations don’t involve the projected vs. guaranteed column problem. The premium is level, and the death benefit is fixed. The illustration complexity that has driven 30 years of regulatory iteration is almost entirely a permanent product phenomenon, concentrated in IUL and indexed annuities.
The NAIC’s LIAIWG will review comments after the July 17 deadline and then work toward a proposal. The NAIC Summer National Meeting is the typical venue for substantive votes on changes to the Valuation Manual and model laws. Watch whether the working group brings a recommendation forward on the stopgap question before that meeting, and watch whether the ACLI’s opposition hardens into a formal comment letter, which would signal a longer fight ahead.
