Why are premiums typically higher for equity-indexed life insurance?

Premiums for equity-indexed life insurance are typically higher due to the increased coverage benefits that these policies offer compared to standard life insurance policies. An equity-indexed life insurance policy combines a death benefit with a cash value component that can grow based on the performance of a specific stock market index. This feature provides policyholders the potential for higher returns than whole life or term life insurance products.

The growth of the cash value is often linked to a stock market index, allowing policyholders to benefit from market gains while also providing downside protection, usually through a floor that limits losses. The combination of these features—death benefit security coupled with potential cash value growth—requires insurers to charge higher premiums to cover the associated risks and costs of managing the policy.

While other factors such as sales commissions or policy terms could influence premiums in some types of insurance, they do not directly relate to the unique benefits offered by equity-indexed life insurance. Thus, the higher premiums are primarily justified by the enhanced benefits available to policyholders.