Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
In an equity-indexed universal life (IUL) policy, how is interest credited to the cash value?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
An equity-indexed universal life policy is an interest-sensitive product whose cash value is credited with interest linked to the movement of an external stock index, typically the S&P 500. The insurer applies a participation rate and usually sets a cap (maximum crediting) and a floor (guaranteed minimum), so the policyowner shares in index gains but is protected against index losses. The policyowner does not own the index or the underlying stocks; the insurer simply credits interest based on index performance within contractual limits.
Why the other options are wrong
- B) A fixed rate for the life of the policy describes a fixed (non-indexed) universal life policy, not an IUL whose crediting tracks an index.
- C) The cash value is not directly invested in stocks; the policyowner has no ownership interest in the underlying securities.
- D) Dividends belong to participating (par) policies; IUL policies credit index-linked interest rather than declare dividends.
Memory hook
IUL = index returns with a safety net: track the S&P 500, capped high, floored low, no stock ownership.