Here are some major differences between the two products:
Investment component: both types of life insurance offer a funded component, and part of the premium is sent on investment. However, universal life insurance usually offers a wider range of investment options such as stocks, bonds, or money markets. Index life insurance is linked to a specific financial market index, such as the S&P 500. A growth in index determines an increase in insurance capital.
Guaranteed minimum: universal life insurance usually offers a guaranteed minimum for insurance capital and accumulated value, which can be stipulated in the contract. This means that even if the investment does not give the expected result, there is a minimum guaranteed amount. In index life insurance, a guaranteed minimum cash value of insurance capital can be provided but growth is linked to the performance of the chosen index.
Premium flexibility: universal life insurance usually offers more flexibility in terms of premiums. A policy owner can regulate the size and frequency of premium payments within certain limits. Index life insurance can also provide some flexibility, but there are limits to minimum premium requirements and maintaining an active policy.
Risk coverage: like universal life insurance, index life insurance offers death coverage that is paid out to the beneficiary in the event of the insured’s death. Both types of insurance may also offer additional coverage against investment risks, which can be provided by optional addenda or riders (additional provisions) to index life insurance or universal life insurance policies. For example, this may include windfall protection riders or index riders, which may offer a guaranteed minimum or coverage against negative index performance.
It is worth noting that specific conditions and characteristics of index and universal life insurance policies may differ depending on the insurance company.
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