What is the purpose of a policy illustration and what must be disclosed?

• A. It shows projected performance and must be clearly labeled as illustrative with disclosed assumptions and not guaranteed.
• B. It outlines all legal terms of the policy in full.
• C. It sets the mandatory premium payments for policy terms.
• D. It guarantees future dividends and returns to the policy owner.

Answer: (A)

Policy illustrations are projections of how a life policy might perform under specific assumptions. They’re meant to help you compare policies and understand potential paths for cash value and death benefit, not to promise outcomes. Because these numbers depend on non-guaranteed elements, they must be labeled clearly as illustrative and include the assumptions used—such as credited interest or dividend rates, premium payments, loan or withdrawal options, and policy charges. The illustration should also state that actual results can differ from what’s shown and that the policy contract governs guaranteed values. It’s common for illustrations to distinguish guaranteed amounts from illustrated (non-guaranteed) values and to include the date and product details. They do not contain all legal terms, do not set mandatory premiums, and do not guarantee future dividends.