What type of life insurance policy is most affected by stock market performance?

Equity-indexed life insurance is a unique type of permanent life insurance that ties its cash value growth to a stock market index, such as the S&P 500. The key feature of this policy is that the cash value accumulation is linked to the performance of the designated index, allowing policyholders to benefit from potential gains in the stock market while still offering a level of protection against losses due to minimum interest guarantees.

The structure of equity-indexed life insurance typically includes a cap on the maximum growth and a floor that guarantees a minimum return, ensuring that although the policyholder can benefit from market performance, they are also protected from negative returns. This dual characteristic means that the performance of stock markets can have a significant direct impact on the overall value of the policy.

In contrast, whole life insurance provides a more stable approach, with guaranteed growth in cash value that is determined by the insurer's declared dividends and the company's performance, but it is not directly affected by the stock market. Term life insurance offers only a death benefit for a specific period without a cash value component, so it is entirely unaffected by market performance. Universal life insurance has some flexibility in adjusting premiums and death benefits, but its cash value growth is typically based on a declared interest rate rather than