What is a life insurance illustration?

A life insurance illustration is considered an important tool in the sale and understanding of life insurance policies, particularly because it includes various elements of the policy, both guaranteed and non-guaranteed. The correct answer emphasizes that an illustration provides a comprehensive view by depicting not only the guaranteed benefits, such as the death benefit and any guaranteed cash value, but also non-guaranteed elements such as projected dividends, interest rates, and assumptions about the future performance of the policy.

By including non-guaranteed policy elements, the illustration allows potential buyers to understand the different scenarios that could impact the policy's performance over time. This helps consumers make informed decisions about the insurance products they are considering, as they can see a range of outcomes based on varying factors. The illustration also indicates how these non-guaranteed elements can affect the overall value and benefits of the life insurance policy, showcasing its potential growth and possible returns, which is essential for setting realistic expectations.

In contrast, illustrations that only reflect guaranteed benefits would not provide a complete picture necessary for understanding how a policy might perform or the potential for additional value provided through non-guaranteed elements. The other options, such as a legal contract or solicitation form, do not encompass the dynamic and informative nature of an illustration