How to Read an FIA Illustration — What Carriers Don't Explain

By Editorial Team

Published January 1, 2024 · Updated May 5, 2026

FIA illustrations are carrier-generated documents, produced by the same companies selling the product. They contain real data, but they also contain structural ambiguities, selective time periods, and a benefit roll-up figure that looks like money but isn’t. Here is how to read one with appropriate skepticism.

What an FIA Illustration Actually Is

An FIA illustration is a hypothetical projection of how your contract might perform over time. It is generated by the carrier or a licensed software system the carrier certifies. It is not a guarantee. The numbers are based on assumptions — primarily the current cap rate, participation rate, or spread applied to either historical index data or a hypothetical flat assumed rate.

Regulators require carriers to show certain standard scenarios. Most illustrations include at least two primary columns: a 0% scenario and a historical or illustrated scenario. Some carriers now include a third column showing mid-point assumptions. Understanding the difference between these columns is the first thing you need to know.

The 0% Scenario: More Important Than You Think

The 0% scenario shows what happens if the index credits zero interest every single contract year for the entire illustrated period. This is the contractual worst case under a standard FIA (excluding riders, which may add separate fees that can erode the account value even in a 0% interest environment).

The 0% column is important for two reasons. First, it reveals the real cost of any riders attached to the contract. If your account value after 10 years in the 0% scenario is significantly below your initial premium, rider fees are the cause — they are charged regardless of credited interest. An income benefit base that grows at 7% annually while the actual account value shrinks is not a contradiction; it just means the income base is a ledger entry, not accessible cash.

Second, the 0% scenario tells you the structural floor of the contract. For a no-rider FIA, this should equal your premium (or close to it) indefinitely, because the 0% floor means your account value cannot decline due to index performance, and there are no fees being deducted. If the 0% account value declines over time, there are fees in the contract.

The “Historical” Column: What It Actually Represents

Most illustrations include a column labeled “historical” or “based on historical index performance.” This column shows what your contract would have credited if the current cap rate had been in effect during some prior historical period — typically the most recent 10 to 20 years of data.

This is not actually a historical record of your contract’s performance. It cannot be, because your contract did not exist. It is a retroactive model using current contract terms applied to past index data. The cap rates, spreads, and participation rates shown in the historical column are the rates offered today — not the rates that were available when those historical years actually occurred. In many market environments, current cap rates are higher than what was available a decade ago; this makes the historical column somewhat optimistic.

Additionally, many illustrations use the current cap rate as a fixed assumption across all illustrated years. This ignores the reality that cap rates reset annually and have historically varied. A carrier that currently offers a 9% cap may have been offering 6% caps five years ago and may be offering 5% caps five years from now. The illustration assumes today’s cap persists forever, which is the most favorable possible assumption.

Participation Rates and Cap Rates in Illustration Context

Some illustrations present a participation rate strategy alongside — or instead of — a cap rate strategy. The presentation can be misleading because a 130% participation rate on a volatility-controlled index does not mean “130% of what the S&P 500 does.” It means 130% of the performance of that specific index, which typically returns considerably less than the S&P 500 in strong markets.

A well-designed illustration will show you the index name, the specific crediting method, and the actual index values used in the historical column. A poorly designed one — or a deliberately obfuscated one — will show you a participation rate and an impressive historical column without clearly disclosing which index underpins it. If you cannot identify the exact index being credited in the illustration, ask for it in writing before proceeding.

How to Spot a Cherry-Picked Time Period

Insurance regulations generally require illustrations to use a specific standardized historical window or to use a carrier-certified assumed rate — but enforcement varies, and the choice of index and time period for the “historical” column can be selective.

The primary red flag: an illustration that shows a historical window beginning in 2010 or 2012 is using the longest bull market in recent U.S. history. An FIA with any cap rate at all looks exceptional when the underlying index gains 200% over a decade. The same cap rate applied over 2000 to 2010 — which included two major crashes — would tell a very different story.

Ask the agent: “Can you show me the same strategy using a window that includes 2000–2002 or 2008–2009?” If the illustrated product cannot run a scenario including those periods — either because the index didn’t exist yet or because the data isn’t available — that’s meaningful context. A newer proprietary index with only five years of live history is showing you a very limited picture.

This is one of the reasons the team at RankMyAnnuity built the Index Performance Calculator with data going as far back as the available index history allows, rather than letting you choose the most flattering window.

The Income Benefit Roll-Up Rate: Not Your Money

This is the single most misunderstood element in any FIA illustration that includes an income rider. If the carrier advertises a “7% income benefit roll-up” or shows an income benefit base growing at 7% annually in the illustration, that number does not represent your contract’s account value growing at 7%.

The income benefit base is a separate ledger entry — a notional value used only to calculate the size of your future guaranteed withdrawals. It is not cash. You cannot surrender the contract and receive the income benefit base as a lump sum. If you die before taking income, your beneficiaries receive the actual account value — not the income benefit base. The roll-up rate does not represent your rate of return on the contract.

The actual economic value of the income benefit base depends entirely on how long you live and draw income from it. If you take income for only 5 years before dying, the income base was nearly irrelevant. If you live 30 years into the withdrawal phase, that guaranteed income floor may have been extremely valuable. The team at RankMyAnnuity’s Income / IRR Calculator solves for the implied rate of return on any income stream — which is the only way to make a rational economic comparison between a GLWB payout and simply drawing down the same investment elsewhere.

Common Red Flags in FIA Illustrations

After reviewing thousands of annuity illustrations across dozens of carriers, the team at RankMyAnnuity has identified several patterns that warrant additional scrutiny:

Unlabeled or ambiguously labeled indexes. If the historical column doesn’t clearly identify the exact index by name and version (e.g., “S&P 500 Price Return, 1-year point-to-point, 9% cap”), you don’t know what you’re looking at. Demand specificity.

Income base presented as if it were account value. Watch for illustrations that lead with large income base projections in a prominent position and bury the actual account value in fine print or a secondary column. The account value is your real money; the income base is a calculation input.

Historical columns using only post-2010 data. As noted above, any historical window that avoids the 2000–2009 decade is cherry-picked. It is not necessarily fraudulent, but it is incomplete.

Multiple crediting strategies in the same illustration with different time windows. When a carrier shows you one strategy from 2014 to 2024 and another from 2010 to 2024, they may be selecting the best start date for each. Both should be evaluated over the same period for a fair comparison.

Illustrated income that begins immediately. Some illustrations show annual income beginning in year 2 or year 3 with an assumed immediate income election. This is useful context, but it’s not the default — most buyers do not elect immediate income from a product they just purchased. Confirm the income deferral period that matches your actual plan.

No breakeven or surrender value table. A complete illustration should show both the account value (what you receive if you surrender) and the surrender value (account value minus applicable surrender charges) for each contract year. If the surrender charge schedule is buried or omitted, ask for it explicitly.

How to Cross-Check with a Third-Party Tool

The most effective counter to a cherry-picked illustration is running your own analysis using an independent tool with different data and no incentive to show favorable results.

Take the index name and crediting method from the illustration. Enter the same cap rate, participation rate, or spread into the Index Performance Calculator on this site. Compare what you see. If the carrier’s illustration shows a particular index producing strong historical returns, but the independent calculator shows the same index underperforming another option under the same crediting method, you have useful information.

You can also use the Income / IRR Calculator to evaluate the implied rate of return on any income benefit being illustrated. If the GLWB income stream is illustrated at $24,000 per year starting at age 75 from a $200,000 premium deposited at age 65, you can enter those numbers and see exactly what implied IRR you need to live long enough to justify the income rider fee you paid for 10 years. That is the question the illustration never directly answers.

Cross-check any illustration with the Index Performance Calculator

Enter the index and crediting method from your illustration and compare what you see against independent historical data — across 64 indexes, with side-by-side comparison and a $100K growth chart. Free, no account required.

Open the Index Performance Calculator