Final answer:
Indexed whole life insurance is a flexible premium policy that includes a death benefit and an inflation-adjusted cash value. It links growth potential to an index such as a stock market index but has specific limits like caps on returns.
Step-by-step explanation:
Indexed whole life insurance is a type of flexible premium policy that provides a death benefit along with a cash value component. This form of life insurance allows the policyholder to enjoy a level of financial security that is adjusted for inflation. The distinctive attributes of indexed whole life insurance involve the cash value being tied to an underlying index, such as a stock market index, to provide for potential growth in the policy's value that could surpass inflation rates. The idea is to safeguard the purchasing power of the benefits over time without directly investing in the stock market, thus offering a blend of growth potential and stability.
The policy provides a guaranteed death benefit along with the potential for cash value growth. This cash value can be accessed by the policyholder for personal use, functioning almost like a personal savings account. However, it's crucial to understand the terms related to withdrawals and loans against this cash value, as they can affect the policy's value and the death benefit. Additionally, while the indexing aspect offers a hedge against inflation, there are limitations, such as caps on returns and participation rates, which can affect the overall growth potential.