Final answer:
A life insurance policy that offers a guaranteed interest rate with the potential for higher returns is known as universal life insurance. It is a type of cash-value life insurance that also allows the policyholder to borrow against the accumulated cash value. Understanding the specifics of such insurance policies is crucial for making informed decisions about financial protection.
Step-by-step explanation:
The type of life insurance policy that contains a guaranteed interest rate with the opportunity to earn a rate higher than the guaranteed rate is called universal life insurance. Universal life insurance is a form of cash-value life insurance, which means it not only provides a death benefit but also accumulates a cash value over time. This cash value can be used by the policyholder for various purposes, including borrowing against the policy. It's important for policyholders to remember that loans against their policy will require repayment plus interest.
Life insurance companies use the premiums paid by their customers to provide financial protection to the beneficiaries of the policy upon the death of the insured. After paying out insurance claims, life insurance companies may have an excess of cash, which can be lent to others or borrowed against by the policyholders, in accordance with their policy terms.
There are many types of insurance available, such as health insurance, car insurance, house or renter's insurance, and life insurance, each serving to protect against different financial losses. Understanding the various insurance markets and the types of policies offered is essential for consumers to make decisions that best suit their needs over time.