What is the purpose of a policy illustration in a life insurance contract?

A policy illustration in a life insurance contract primarily serves to illustrate potential policy benefits. It provides a visual representation of how the policy may perform over time, showing projections for factors such as cash value accumulation, death benefits, and premium payments based on certain assumptions. This tool helps policyholders understand what to expect from their life insurance policy and the benefits it can provide, based on various scenarios.

In doing so, policy illustrations play a critical role in helping consumers make informed decisions about purchasing life insurance. They allow prospective policyholders to see the effects of different variables, such as the length of time the policy is held and the amount of premium paid, shaping a more informed choice regarding their financial planning.