Final answer:
An Equity Indexed Whole Life is a life insurance policy that uses an equity index as its investment feature. The performance of the policy's cash value is tied to a particular stock market index and it provides a minimum guaranteed return to protect against loss. Returns can be capped and limited by participation rates.
Step-by-step explanation:
An Equity Indexed Whole Life is a kind of life insurance policy that uses an equity index as its investment feature. This means that the performance of the policy's cash value is tied to a particular stock market index, such as the S&P 500. When the index performs well, the cash value increases. Conversely, if the index performs poorly, the policy provides a guaranteed minimum return to protect against loss.
This kind of policy combines the features of traditional whole life insurance, which provides a death benefit and builds up cash value, with the potential for higher returns based on stock market performance. However, it's also important to note that equity indexed whole life insurance policies include caps and participation rates which can limit the policyholder's return on investment.
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