What is the purpose of an "equity-indexed product" in life insurance?

An equity-indexed product in life insurance is designed to offer growth potential that is linked to the performance of a stock market index, such as the S&P 500. This means that the returns on the policy are tied to the fluctuations of that index, allowing policyholders to benefit from market upswings while also enjoying a degree of downside protection.

Typically, these products have a built-in mechanism to ensure that even if the stock market performs poorly, the policyholder will not lose their initial investment. However, the upside is generally capped, meaning that while the policyholder can participate in some of the gains of the stock market, there is a limit to how much they can earn in any given period. This characteristic makes equity-indexed products a balance between the security of a fixed return product and the potential higher returns of more volatile market investments, appealing to those who seek growth with a safety net.

The other options do not accurately reflect the nature of equity-indexed products. They do not guarantee returns regardless of market performance, nor do they provide a fixed interest rate or serve as tax-deductible investments; instead, their main feature is the linkage to stock market performance, which allows for potential growth.