Final answer:
An equity-indexed life policy is primarily tied to a stock market index, which allows for both a guaranteed return and the potential for higher earnings based on market performance, similar in concept to indexed bonds.
Step-by-step explanation:
An equity-indexed life policy is likely to be tied to a stock market index. These policies are a type of permanent life insurance that link the cash value component of the policy to a stock market index, such as the S&P 500. The insurance policy provides a guaranteed minimum return but allows policyholders to potentially earn more if the stock market performs well, combining elements of both fixed interest and variable returns based on market performance.
Indexed bonds, like the ones introduced by the U.S. government, work on a similar principle by being tied to an index like inflation, ensuring they pay a real rate of interest adjusted for inflation, which can be particularly beneficial for long-term planning and reducing concern over inflation.