Indexed Universal Life (IUL)

In plain English

What an IUL is.

Indexed universal life is a type of permanent life insurance. Like any life insurance, it pays a death benefit to your beneficiaries. It also builds cash value, and how fast that cash value grows is linked to a stock market index, such as the S&P 500.

Your money is not invested in the stock market. Instead, the insurance company credits interest to your cash value based on how the index performs, within limits. That gives you part of the market's upside in good years, with protection from index losses in bad ones.

That's what sets an IUL apart: it's built to protect your family and to build cash value you can use during your own lifetime.

Financial planning representing Indexed Universal Life

CoveragePermanent, when properly funded

GrowthLinked to an index, up to a cap

Down yearsA floor, often 0%, protects credited interest

While you're livingCash value you can borrow against

Step by step

How an IUL works over time.

You pay premiums

Part of each payment covers the cost of insurance and policy fees. The rest goes into your cash value.

Interest is credited

At the end of each crediting period, usually a year, the carrier credits interest based on the index, somewhere between the floor and the cap.

Charges come out

The cost of insurance and policy fees are taken from the cash value every month. Those costs rise as you get older.

You can use the cash value

Over time, you may be able to take policy loans or withdrawals for things like supplementing retirement income. Loans that aren't repaid reduce the death benefit.

Living benefits

More than a death benefit.

An IUL protects your family, and it's also designed to build cash value you can use during your lifetime. That's why many people make it part of their long-term financial planning.

Later in life

Supplement Retirement Income

Once your cash value has grown, you may be able to take policy loans to add to your income in retirement. There's no age you have to reach first and no required minimum distributions.

Tax advantages

Tax-Advantaged Growth

Your cash value grows tax-deferred, policy loans are generally not taxed as income while the policy stays in force, and the death benefit is generally income-tax-free.

Downside protection

Protection From Market Drops

Thanks to the floor, a down year in the index doesn't reduce your credited interest, and interest already credited can't be taken back by a later drop. Policy charges still apply.

Flexible access

Money for Life's Big Moments

Borrow against your cash value for things like a down payment, a child's education, starting a business, or an emergency.

Room to grow

Higher Funding Limits

An IUL doesn't have the yearly contribution limits of a 401(k) or IRA. IRS rules still cap how much you can put in relative to the death benefit, and we'll help structure the policy within them.

If you get sick

Living Benefit Riders

Many IUL policies include or offer riders that let you use part of your death benefit early if you're diagnosed with a qualifying terminal, chronic, or critical illness.

How the growth is figured

Caps, floors, and participation rates.

These three numbers decide how much interest your cash value earns each year. They're set by the insurance company and spelled out in your policy.

The ceiling

Cap Rate

The most interest you can be credited in a period. If the cap is 10% and the index gains 15%, you're credited 10%.

The safety net

Floor

The least you can be credited, often 0%. If the index drops 12%, you're credited 0% instead of losing 12%.

Your share

Participation Rate

How much of the index gain counts toward your interest. At 100%, you get the full gain up to the cap. At 80%, a 10% gain counts as 8%.

Hypothetical year	What the index did	Interest credited to you
Year 1	Up 15%	10% (limited by the cap)
Year 2	Down 12%	0% (protected by the floor)
Year 3	Up 6%	6%

Hypothetical example for illustration only, assuming a 10% cap, 0% floor, and 100% participation rate. It is not a projection of any actual policy. Real caps, floors, and participation rates are set by each carrier and can change over time. Credited interest is before policy charges, and most indexes are measured without dividends.

Is it right for you?

An IUL may be worth a look if you...

Want coverage that lasts your whole life
Want your policy to build cash value you can use while you're alive
Are planning 15 years or more ahead
Can fund the policy consistently, especially in the early years
Want another tax-advantaged option alongside your retirement accounts
Want to leave a legacy for your family

Good to know

What to understand before you buy.

It's life insurance first. Your cash value growth is linked to an index, but you don't own shares of the market, and past index performance doesn't predict future results.
Your cash value can still go down. In a year when 0% is credited, the policy's monthly charges still come out.
Caps and participation rates can change. The carrier can lower them over time, down to the minimum guaranteed in your policy.
Early exits are expensive. Most policies have surrender charges for the first 10 years or more, so cancelling early can mean getting back less than you paid in.
It has to stay funded. If the cash value can't cover the policy's charges, the policy can lapse. A lapse with an outstanding loan can also create a tax bill.
Projections are not promises. The illustration you'll see is based on assumptions. We'll walk you through both the guaranteed and non-guaranteed numbers.
Tax benefits depend on the rules. Tax advantages depend on the policy being set up and funded within IRS limits. Talk to a tax professional about your situation.

Common questions

Questions people ask us.

Is an IUL better than a 401(k) or IRA?

They do different jobs, and many people use both. A 401(k) or IRA is a retirement account. An IUL is life insurance first, and it also builds cash value you may be able to access through policy loans later in life, for example to supplement retirement income. Unlike most retirement accounts, an IUL has no yearly contribution limit, no age you must reach before accessing cash value, and no required minimum distributions. It also has insurance costs and surrender charges that retirement accounts don't, which is why we look at your whole picture before recommending anything.

Can I lose money?

Index losses don't reduce your credited interest because of the floor, but policy charges still come out every month, and cancelling in the early years can trigger surrender charges. That's why an IUL works best when you plan to keep it for the long term.

How much should I put in?

It depends on your goals and budget. A policy designed to build cash value is usually funded above the minimum premium. We'll show you how different amounts change what the policy can do.

How do policy loans work?

You borrow from the insurance company, using your cash value as collateral. There's no set repayment schedule, but interest is charged, and any unpaid balance is subtracted from the death benefit.

Is my money in the stock market?

No. The index is only used to calculate how much interest is credited. Your cash value is held by the insurance company.