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It's a good question, and I know the answer. It's all about NAIC and securities regulations that govern how illustrations work regarding indexed life insurance.
The 3% is the minimum interest guarantee - assuming you allocate your funds to that, rather than an index. You'll notice there are 1 or 2 more columns with a given annual interest rate and how well your policy would do if that amount was credited every year.
As we've already discussed, the likelihood of that happening is essentially none. But it's there because it has to conform to NAIC insurance regulations, so it's there.
That's the standard. There are some other companies that will let the agent VARY the amount of interest credited to show in the illustration (such as 0% for two years, then max interest for 3 years and alternating that scenario), but even that isn't quite right because cap rates change as interest rates fluctuate.
Also, NAIC (and probably securities laws) would not allow for a true "back-testing" of S&P 500 (or any other index) performance to show what would've REALLY happened if you bought the policy 20 years ago. Too many moving parts AND the money is not actually invested in the index. To keep it "safe", it's best not to make that actual comparison in a regulated illustration.
Illustrations help us understand the nature of the policy, but certainly cannot predict the future.
I hope this helps some.
