What mechanism allows life insurance to protect against inflation?

Indexed whole life policies are designed to protect against inflation through a linkage to a specific stock market index. This means that the cash value and death benefits of these policies can increase in tandem with the performance of the index to which they are tied. As inflation rises, the purchasing power of money decreases, making it essential for insurance products to keep pace with these economic changes. Indexed whole life policies address this by allowing for potential growth in cash value that reflects the inflationary impact on the cost of living, thereby offering a safeguard for policyholders.

The other options do not incorporate mechanisms to adjust value in accordance with inflation. Fixed term policies have set death benefits without any adjustment for inflation, while guaranteed issue policies primarily focus on providing coverage regardless of health status, without inflation adjustments. Variable universal policies provide investment options that can grow but do not have a built-in inflation protection feature inherently tied to an index. Thus, indexed whole life policies specifically serve the purpose of adapting to and mitigating the effects of inflation.