Definition of equity indexed universal life insurance

insurance in which most of the premium (generally 80 to 90%) is invested in traditional fixed income securities. The remainder of the premium is invested in call option contracts tied to a stipulated stock index. In those instances where there is an increase in the market, exercising of the option contracts takes place and a given percentage of the gain is then credited to the policy. Conversely, should the market decline, the option contracts are said to expire worthlessly and the policy is credited with the minimum guaranteed rate. This type of policy may be suitable for that person who has an interest in purchasing a variable life insurance policy but is not at ease in participating in the equities market. This type of person could have the best of both worlds: the potential high returns of the equities market without the risk to the initial investment (principal).