Under California's illustration rules (CIC §10509.950 et seq.), a life insurance policy illustration must:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
California's insurance illustration regulations, CIC §10509.950 et seq., require that illustrations clearly differentiate between guaranteed elements and nonguaranteed, projected elements such as dividends or current interest credits. Illustrations must not be misleading, and the nonguaranteed column must be labeled as such so consumers understand that projected values are not promises. Illustrations are regulated marketing tools; they may not be used to misrepresent a policy's future performance. This labeling protects buyers from relying on rosy projections as guaranteed results and helps them compare policies on an honest basis.
Why the other options are wrong
- B) Illustrations typically show current assumptions and may include multiple scenarios, not only worst-case returns; the legal requirement is clear labeling, not a single pessimistic scenario. Projected columns are labeled nonguaranteed, not worst-case.
- C) Dividends and current interest credits are nonguaranteed by nature and may not be presented as guaranteed promises in any illustration. Presenting them as guaranteed would be exactly the misrepresentation the rules prohibit.
- D) Comparison rules govern replacement transactions and the buyer's guide; the illustration itself concerns the proposed policy's own values, not a competitor comparison. An unsolicited comparison is not a required illustration element.
Memory hook
Illustration rule: the guaranteed column is a promise; the projected column is a wish.