A "sales illustration" is defined in simple terms as an "illustration" (normally in the form of a table) the premiums and benefits applicable to a particular life insurance product that a policyholder chooses to buy.
With regards to issuing "sales illustrations", life insurance companies are required to have good practices, so that the policyholders clearly know what they are expected to receive in the years ahead.
The future is very difficult to predict with accuracy, especially so when the life insurance companies are looking 20 to 30 years ahead, which essentially is the life-span of most if not all life insurance policies.
Anything can happen in 20 or 30 years. The whole world could have changed. What could be risks might not be so in the future. And what was not covered by life insurance would be covered in 20 to 30 years' time.
More importantly the economic and investment environment could change so drastically, interest rates too could stay low, very low and for long periods to the extent that returns from investments could be miniscule by past comparisons.
So what is stated in the "sales illustration" that life insurance companies gave to their policyholders could at best be a guide, or as a reference, and should not be taken to be cast in stone.
Good ethical practices require that life insurance companies must issue a "sales illustration" at the point of sale to those policyholders who have bought participating life insurance policies. Similarly it also goes for those buying non-participating life insurance policies.
To ensure that policyholders get the benefit of an updated version of the "sales illustration", life insurance companies are required to present their "sales illustrations" that are current and as accurate as possible, and not in a way that is misleading.
In any "sales illustration", life insurance companies may make references to past performances.
In such instances, good practices require all life insurance companies to accompany all "sales illustrations" with a declared statement that past performance is no guide to future performance, as the latter could be different from the former.
And if there are benefits that are not guaranteed, the life insurance company must emphasize in the annual statement as such. The companies must also declare that the quantum declared could be more or less the value as stated in the "sales illustration".
More importantly, life insurance companies must show the non-guaranteed benefits separately from the guaranteed benefits, so that the policyholder is well aware of which benefits would be certain and which are not.
Otherwise, arguments could arise over a matter that is not made clear right from the beginning.
In some cases, the policy is being used as a collateral for a loan. And where the proceeds of the policy, with non-guaranteed benefits, on maturity are to be used to settle the loan, life insurance companies are to state clearly the words "there is no guarantee that the full loan amount will be available on maturity".
In other words, the policyholder should keep on paying the premium on his policy for the length of the period as agreed in the "sales illustration" as applicable for each particular product.