A Cap in an indexed life insurance policy is the maximum interest rate your cash value can earn in a given period, even if the market index performs better. For example, if the cap is 10% and the index gains 12%, you would only receive 10% growth on your policy’s cash value.
Caps help protect the insurance company from paying out too much in high-performing years, while still offering some growth potential to policyholders. Although it limits the upside, a cap also provides more stability compared to direct stock market investments.