How to read and understand an annuity illustration

If you are trying to figure out how to read an annuity illustration, the short answer is this: the document is a projection, not a guarantee. It shows what your annuity values might look like over time under specific assumptions. The numbers labeled "guaranteed" represent minimums the insurance company is contractually obligated to provide. Everything else depends on assumptions that can and will change.

Below, we break down the standard sections of an annuity illustration, explain what drives the numbers, highlight what the document does not show, and give you a checklist to use before discussing the illustration with anyone.

What an annuity illustration is (and what it is not)

An annuity illustration is a supplemental document that an insurance company or its representative prepares to explain how a contract might perform under stated conditions. It is typically created using insurer-authorized software and must include specific disclaimers about the limits of its projections.

The illustration is not the annuity contract. It does not bind the company to any projected values. Under the NAIC Annuity Disclosure Model Regulation (Model #245), which sets the baseline standards most states follow, illustrations must be clearly labeled and must include narrative disclaimers explaining that actual results will be higher or lower than shown.

In North Carolina, the Annuity Disclosure Act (NCGS Chapter 58, Article 60) requires that you also receive a disclosure document and a Buyer's Guide at or shortly after application. The illustration is a separate tool that supplements those documents. It helps explain contract mechanics, but it does not replace the contract language that governs your actual rights and obligations.

The standard sections you will see

Most annuity illustrations follow a similar structure, though the exact layout varies by company and product type. Here is what typically appears.

Personal and contract details

The top of the illustration usually lists your age, sex, premium amount, contract type, and the date the illustration was prepared. These details matter because the projections are calculated specifically for those inputs. If your age or premium is listed incorrectly, the numbers may not reflect your actual situation.

Guaranteed values

This section shows the minimum amounts the insurance company is contractually obligated to provide, assuming you keep the contract in force and follow its terms. For a fixed annuity, this might include a guaranteed minimum interest rate during an initial guarantee period and a (sometimes lower) guaranteed minimum rate for the period after that. For a fixed indexed annuity, the guaranteed column usually reflects a floor rate, often 0%, meaning you would not lose credited interest due to index performance. Other charges, such as administrative fees or rider costs, could still reduce values even if the floor applies.

Guaranteed values come from the contract itself. They represent the worst-case scenario the insurer has agreed to, subject to its claims-paying ability.

Non-guaranteed projections

This is where most confusion begins. The non-guaranteed columns show what your values might look like if current conditions continue. For a fixed annuity, the projection might assume the current credited rate stays the same for the life of the contract. For a fixed indexed annuity, the projections often use historical index performance scenarios while assuming that today's cap rates, participation rates, and spreads remain unchanged.

These numbers are hypothetical. The NAIC model regulation requires that illustrations include a narrative summary explaining that non-guaranteed elements are based on current conditions and that actual results will differ. That disclaimer is not a formality. The insurer can change caps, participation rates, and spreads at its discretion, sometimes annually. And market index performance will not replay any single historical sequence.

Surrender value schedule

Many illustrations include a table showing what you would receive if you cashed out during the surrender charge period. This amount is typically less than the account value because surrender charges are deducted. A market value adjustment may also apply to some contracts.

Surrender charges typically start higher and decline over a period of years, depending on the contract. The illustration should reflect these charges in the surrender value column. If the surrender column looks identical to the account value in early years, ask whether the surrender charges are shown elsewhere or whether the contract has no surrender period. Do not assume they are absent.

Income payment projections

Some illustrations show what periodic income payments might look like if you annuitize the contract or activate an optional income rider. The projected income depends on the assumed account value when payments begin, the payout option selected (life only, period certain, joint life, and so on), and the income rates used at illustration time.

With income riders, the projected income is often based on an income base that grows at a roll-up rate separate from the actual account value. The income base and the account value can be two very different numbers. Make sure you understand which one the illustration is using for each column.

Assumption notes and disclaimers

Near the end or bottom of the illustration, you will find a section describing the assumptions used. If you are going to read one section carefully, make it this one. It tells you:

• What interest rates or crediting methods were assumed
• Whether caps, participation rates, or spreads were held constant
• What index was used and whether historical performance data was applied
• Whether fees or rider costs are reflected in the projections
• The date the illustration was prepared

Anything you cannot find here, ask about.

Guaranteed versus non-guaranteed values

The most common mistake people make with annuity illustrations is treating the non-guaranteed column as the expected outcome. It is not. The NAIC model regulation specifically requires narrative disclaimers in the illustration because this confusion is so widespread.

Guaranteed values come from the contract. They represent minimums the insurer promises, subject to the contract terms and the company's ability to pay claims. These typically include minimum interest rates during and after any guarantee period, death benefit minimums, and any guaranteed income payment amounts.

Non-guaranteed values are projections built on assumptions. They use current rates, current caps, historical index data, or assumed future conditions to show what could happen if nothing changes. The higher numbers in a non-guaranteed column can look appealing, but they reflect conditions that may shift, sometimes within months of receiving the illustration.

If you are comparing illustrations from different companies, compare guaranteed values to guaranteed values and non-guaranteed to non-guaranteed. Mixing the two leads to misleading comparisons.

Assumptions that drive the numbers

Several assumptions shape what an illustration shows. Knowing what they are helps you spot where the projections could break down.

Crediting rate assumptions. For a fixed annuity, the illustration may show a current credited interest rate. That rate is usually guaranteed for an initial period, often 1 to 10 years, but may change after that. The non-guaranteed projection might assume the initial rate continues indefinitely. It probably will not.

Cap, participation rate, and spread assumptions. For fixed indexed annuities, the illustration typically assumes that the current cap (the maximum interest credited in a period), participation rate (the percentage of index gain credited), or spread (a deducted percentage before crediting) stays the same throughout. In practice, insurers regularly adjust these at renewal. A cap of 6% today could be 4% or 8% next year. The illustration does not account for that kind of movement.

Historical index performance. Fixed indexed annuity illustrations often use historical returns of the referenced index, such as the S&P 500, to show what would have happened if the current contract terms had been in place over that historical period. This is backward-looking, not predictive. Markets do not repeat the same sequences, and the contract terms assumed in the illustration may not persist.

Mortality and expense assumptions. Some illustrations, especially those showing income projections, use mortality tables to estimate life expectancy. Fee assumptions, including rider charges and administrative costs, should be disclosed but sometimes appear only in the fine print. If they are not clearly shown, request a breakdown.

The date of preparation also matters. An illustration from several months ago may reflect a different rate environment. If interest rates have changed or your circumstances have shifted, ask for a current version before relying on the numbers.

How illustrations differ by annuity type

Not all annuity illustrations look the same. The differences reflect how each product type works.

Fixed annuity illustrations tend to be straightforward. They show a guaranteed rate for the initial period, a current rate that may be the same or different, and projected account values at various time points. Surrender schedules and any market value adjustment provisions should also appear.

Fixed indexed annuity illustrations are more involved. They typically present multiple scenarios, sometimes labeled "low" and "high" or based on historical index returns, all using current caps and participation rates. The guaranteed column shows the contractual floor. The NAIC model regulation requires that the narrative summary for these products specifically explain the limitations of using historical index data with current contract parameters.

Immediate annuity illustrations focus on payout rates rather than account value growth. They show the income you would receive per $1,000 of premium (or per a specific dollar amount) under different payout options. The main variables are the purchase rate, the payout structure, and whether period-certain or death benefit provisions apply.

Variable annuity illustrations follow separate rules under securities regulations overseen by FINRA and the SEC. Those are outside the scope of this guide, but if you receive one, know that the regulatory framework is different from fixed and fixed indexed products.

What illustrations do not show

An illustration tells you what might happen under specific, stated conditions. It does not account for several things that can affect your actual results.

Future rate changes. Insurers can adjust non-guaranteed elements like crediting rates, caps, participation rates, and spreads. The illustration assumes these remain constant, which they likely will not.

Tax consequences. The illustration typically does not model federal or North Carolina state income taxes on annuity gains. Tax treatment depends on your individual situation, including whether the annuity was purchased with qualified retirement funds (IRA, 401(k)) or non-qualified money.

Withdrawals before the end of the surrender period. If you take money out early, surrender charges and potentially an IRS early withdrawal penalty (before age 59 and a half) would reduce your proceeds. The illustration's standard projections do not reflect this unless a specific withdrawal scenario is shown.

Inflation. Most illustrations do not adjust projected values for purchasing power. A dollar of projected income in year 20 will buy less than a dollar today.

Insurer financial strength. The illustration assumes the insurance company will remain solvent and meet its obligations. Independent ratings from agencies like AM Best can give you a sense of the company's financial condition, but those ratings are not part of the illustration.

Fee changes. If rider charges or administrative fees are reflected in the illustration, they are typically held constant. Some contracts allow the insurer to adjust fees within certain limits.

A checklist for reviewing your illustration

Before discussing an illustration with anyone, run through these items:

1. Check the preparation date. If it is more than a few months old, ask for an updated version, especially if the rate environment has shifted.
2. Verify personal details. Your age, premium, contract type, and any riders listed should match what you expect.
3. Identify the guaranteed column. Confirm which values represent contractual minimums and understand what guarantees the contract actually provides.
4. Read the assumption notes. Look for details on crediting rates, caps, participation rates, spreads, the index used, and any fees reflected.
5. Read the disclaimers. The narrative summary should state that non-guaranteed projections are not predictions. If it does not, find out why.
6. Compare surrender values. Look at what you would actually receive if you needed your money in year one, year three, year five, and beyond. Compare those amounts to the account value column.
7. Ask what would change the numbers. What happens if crediting rates drop? If the index performs differently than the historical scenario? If you need to withdraw money?
8. Request the full contract and disclosure document. The illustration is a summary tool. The contract is what governs your rights.
9. Request a fee breakdown. If rider charges, administrative costs, or other fees are not clearly shown, ask for a detailed schedule.
10. Verify the agent and company. In North Carolina, you can check licenses through the NC Department of Insurance (ncdoi.gov or 855-408-1212).

North Carolina resources and consumer protections

If you are reviewing an annuity illustration in the Cary or Triangle area, several resources can help you verify information and understand your rights.

North Carolina Department of Insurance. The NC DOI regulates insurance companies and agents in the state. You can verify agent and company licenses, file complaints, or ask general questions about annuity products. Their consumer services line is 855-408-1212, and information is available at ncdoi.gov/consumers.

North Carolina Annuity Disclosure Act. North Carolina requires that you receive a disclosure document and a Buyer's Guide when you apply for an annuity (NCGS Chapter 58, Article 60). These documents describe the types of annuities available, their features, and what to consider. They are separate from the illustration and provide additional context.

North Carolina Life and Health Insurance Guaranty Association. If an insurance company becomes insolvent, the guaranty association provides a limited backstop. For annuity benefits, coverage is generally up to $300,000 per owner per member company (present value). This is not a substitute for evaluating an insurer's financial strength before buying, but it is a layer of protection worth knowing about. More information is at nclifega.org.

NAIC standards and ongoing review. The NAIC Annuity Disclosure Model Regulation (#245) sets the baseline for what illustrations must include and how they must be presented. As of early 2026, the NAIC's Life Insurance and Annuities Illustrations Working Group has been evaluating potential improvements to illustration practices, with a particular focus on indexed annuity illustrations. No finalized changes to mandatory elements have been published as of this writing, but the area is under active review. North Carolina's rules align with NAIC principles, though the specific requirements in effect should be verified with the NC DOI.

For a broader look at annuity due diligence, you can browse our guides on reviewing annuity contracts and fixed indexed annuities. If you have questions about a specific illustration or want help understanding what you are looking at, you can ask a question through our site.

This article is educational only and is not financial, insurance, tax, or legal advice. Annuity illustrations vary by company and product. For guidance on your specific situation, speak with a licensed professional who can review your contract terms and personal circumstances.