Why must insurance agents be cautious when using policy illustrations?

Insurance agents must be cautious when using policy illustrations primarily because insurance outcomes can significantly change based on minor shifts in investment performance. Policy illustrations often project how a life insurance policy’s cash value and death benefit may grow over time, but these projections are influenced by various factors such as interest rates, market performance, and policyholder behavior.

The uncertainty inherent in investment performance means that small fluctuations can lead to marked differences in the eventual outcomes of the policy. For instance, a slight decrease in interest rates can impact the growth of cash value, which can affect long-term expectations laid out in illustrations. This variability underscores the importance for agents to communicate clearly to clients that these illustrations are not guaranteed predictions but rather hypothetical scenarios that can change based on real-world conditions.

Considering the correct alternative emphasizes the impact of investment performance and demonstrates that agents must guide clients with realistic expectations regarding the potential variability in returns and policy benefits.