Index life insurance policies rely on external factors to determine their value and price, including policies based on the Consumer Price Index and variable income index life insurance. These policies can be whole life insurance or stock-indexed, with options for withdrawals and loans, but require qualification based on age, health, and family medical history.
Index life insurance is a policy that relies on external factors to determine the value and price of the policy. This category includes two different types of policies. One type includes policies in which premiums and benefits are based on the Consumer Price Index (CPI). The other type, called variable income index life insurance, refers to investments that are made with excess premiums paid on a policy.
The easiest type of index life insurance to understand is the one used by the CPI. Both the premium and the benefit are linked to the inflation rate. For example, if a policy was originally purchased with a benefit of $100,000 US dollars for a monthly premium of $100, and the CPI increased by 5%, next year the premium would be $105 and the benefit amount would be $ 105,000.
An index life insurance policy is useful for those who want to ensure that the relative value of benefit and premium never change. Often these policies are whole life insurance policies, meaning they are valid for as long as the insured individual is alive and will be paid out upon that individual’s death. This is in contrast to term life insurance, which only pays benefits if the individual dies within a certain period of time.
Stock-indexed life insurance is a product that can be a little trickier to understand, simply because it is both an insurance policy and an investment vehicle. A portion of the premium will go towards administering the policy as usual, but the majority of the premium will be invested in some type of fund or index. If the fund grows in value, the policyholder will receive a payment based on a certain percentage of the growth, up to a certain amount.
As with many types of cash value life insurance policies, stock-indexed life insurance offers consumers options regarding withdrawals and loans against value. Therefore, it is a life insurance vehicle that can become a financing option while the insured person is still alive. However, withdrawing and borrowing may come with certain fees and penalties. It is up to the investor to understand these terms and conditions before making any decision.
Those looking for index life insurance products will likely have to qualify based on a number of criteria. Age, health, and family medical history are often factors with any life insurance policy, and these are no exceptions. Death benefits will eventually be paid out from these policies, and insurance companies want to be sure they are making a good investment.
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