Which of the following statements is true about index-linked policies?

The statement that accurately describes index-linked policies relates to the nature of the insured benefit being tied to stock market performance. Index-linked life insurance policies are designed so that the cash value or death benefit fluctuates based on a stock market index, such as the S&P 500. As the index rises, so too could the value of the policy, offering potential growth that is aligned with market performance.

In terms of premium payments, borrowers may opt to pay higher premiums, especially when they want to secure higher benefits or cover the increased risk associated with market volatility. This strategy is often adopted to enhance the policy’s overall return potential, given that benefits may increase with favorable market conditions.

Unlike fixed benefit policies, index-linked policies do not keep benefits fixed; they dynamically adjust based on the performance of the underlying index. Moreover, while these policies can build cash value, this is not a guaranteed feature to the same extent that traditional whole life policies might promise. Thus, the correct understanding of index-linked policies relates to their ability to provide benefits that respond directly to stock market variations.