An IUL is life insurance first.
An indexed universal life policy is permanent life insurance with a cash value account attached. The cash value earns interest credits tied to the movement of a market index. You are not invested in the market. The index is only the reference point for how much interest gets credited.
It is
Life insurance, first. A death benefit for your family from day one.
It is not
An investment, a retirement account, or a guarantee of growth.
It can be
A second pool of money you can access later, if it's funded and managed correctly.
That word "if" is most of what this page is about.
Where each premium dollar goes.
The order matters. Charges come out first, every year, whether the index credits interest or not. That is why the funding level decides whether this works.
- Cost of insurance. Pays for the death benefit. Set by your age and health at issue, and it rises with age inside the policy.
- Policy charges. Premium loads, administrative fees and rider costs. Heaviest in the early years. Every illustration shows these.
- Cash value. What's left. This is the part that earns index-linked interest credits and that you can access later.
How the interest credit is decided.
0% floor.
Index crediting has a 0% floor. The cash value is not credited negative interest in a down year. Policy charges still apply, so a 0% year is still a down year for the cash value.
Cap or participation rate.
The credit is limited by a cap, a participation rate, or both. You don't get the whole index gain, and you don't get dividends. The insurance company can change caps and rates over time, within the contract's stated limits.
Not guaranteed.
Every cash value number on an illustration is a projection under an assumed crediting rate. It is hypothetical. On your illustration I show you the guaranteed column next to the projected one.
I don't quote rates, caps or past index performance on this site or on the phone. The illustration shows an assumed rate and a guaranteed rate side by side; I'd rather you see both than hear a number from me.
Getting money out later.
Withdrawals.
Up to what you've paid in (your basis) is generally not taxed as income under current tax law. Beyond that, it generally is. Withdrawals permanently reduce the cash value and the death benefit.
Policy loans.
Borrowed against the cash value. Generally not taxed as income under current tax law while the policy stays in force. Loans accrue interest and reduce the death benefit if not repaid.
Take too much out, or let the policy lapse with a loan outstanding, and there can be a tax bill. This is the part that goes wrong for people whose agent never showed them the loan column.
There is generally no age-based early-access restriction of the kind retirement accounts carry. The limit is the policy's own health, not a date on a calendar.
Why people choose it. Every box has a "but" in it. That's on purpose.
Protection from day one.
A death benefit for your family the day the policy is issued, generally received income-tax-free under current law.
Upside with a floor.
Interest credits follow an index up to a cap, with a 0% floor in a down year. Charges still apply; growth is not guaranteed.
Access on your terms.
Loans and withdrawals without the age-based restrictions retirement accounts carry. Under current tax law, loans are generally not taxed as income while the policy stays in force.
Room to fund it.
No IRS annual contribution cap. The ceiling is set by the policy's own design (MEC limits), which we size to you.
Flexible premiums.
Within limits, you can pay more in good years and less in tight ones. The policy has to stay funded enough to carry its charges.
Passes outside probate.
A named beneficiary receives the death benefit directly from the insurance company, typically in weeks, not through an estate.
Where it sits next to term and whole life.
| Feature | Term life | Whole life | Indexed universal life |
|---|---|---|---|
| Death benefit | Yes, for the term | Yes, lifetime | Yes, lifetime if funded |
| Cash value | None | Guaranteed, slower | Index-linked, not guaranteed |
| Down year | n/a | None | 0% floor on credits; charges still apply |
| Premiums | Level for the term | Fixed | Flexible within limits |
| Ongoing costs | Premium only | Premium, lower internal cost | Insurance cost plus policy charges |
| Usually fits | A need with an end date | A guaranteed number | The basics covered, long funding horizon, wants a second pool of money |
General comparison, not advice. If your employer offers a match on retirement contributions, take the match first. I will never tell you otherwise.
The cons, first.
Costs are front-loaded.
Early-year charges mean cash value can be small or negative for several years. Surrender charges apply if you walk away early.
Growth is not guaranteed.
Illustrations are projections. The insurance company can lower caps and participation rates within the contract's limits.
Cost of insurance rises with age.
If the cash value doesn't keep up, the policy needs more premium later or it can lapse.
Loans aren't free money.
They accrue interest, reduce the death benefit, and a lapse with a loan outstanding can create a tax bill.
It only works if it's funded.
Minimum-premium policies mostly end up as expensive life insurance. The cash value job needs real contributions over a long time.
It is complex.
More moving parts than a term policy. It needs an annual review, not set-and-forget.
Who this is usually not right for
- You don't have an emergency fund yet, or you carry high-interest debt.
- Your employer match isn't being fully captured. Take the match first.
- You only need a death benefit for a set number of years. Term costs less and is simpler.
- You may need this money back within the first several years.
- You want a guaranteed number. A whole life policy or a fixed product fits that better.
Someone who already has the basics covered, wants permanent protection for their family, can fund it consistently for a long time, and values having a second pool of money they control.
Using the policy while you're alive.
Many insurance companies include or offer riders that let you accelerate part of the death benefit if you're diagnosed with a qualifying illness. Availability, definitions and cost vary by company and by state.
Terminal illness
A diagnosis with a limited life expectancy, as defined in the rider.
Chronic illness
Inability to perform a set number of daily living activities, or severe cognitive impairment.
Critical illness
Specified conditions such as heart attack, stroke or cancer, per the rider's definitions.
Accelerating the death benefit reduces what your beneficiaries receive and may have tax consequences. On the call I show you which riders are on the policy we illustrate and what they cost. A chronic illness rider is not long-term care insurance.
Why the timing is yours, but not neutral.
Cost is set by your age and health at issue.
Every birthday and every new diagnosis before you apply moves the cost of insurance up for the life of the policy. Nothing you do later moves it back down.
The policy needs years to do its job.
Front-loaded charges mean the useful part of the cash value shows up in the later years.
Applying is not the same as committing.
Underwriting decides what you qualify for. You see the final offer before anything is in force, and state law gives you a free-look period after delivery.
There is no version of this where waiting makes it cost less. There are plenty where waiting is still the right call. I'll tell you which one you're in.
Asked and answered.
No. The floor applies to the index credit, not to the policy. Policy charges come out every year, so in a 0% year the cash value goes down by the charges. That is the first question I answer on your illustration.
The policy keeps paying its charges out of the cash value. If the cash value runs out, the policy lapses. The illustration shows the year the policy is funded enough to carry itself; stopping before that year is the risk.
For a lot of people that is the right answer, and I'll say so. The case for an IUL is narrower: the basics are covered, you want permanent protection, you can fund it for a long time, and you value a second pool of money you control. The Zoom is where we find out which one you are.
Within limits, yes. That is the "universal" in universal life. The limits are the policy's minimum to stay in force and the IRS maximum before it becomes a modified endowment contract. We size both on the call.
About eight minutes of the thirty. I build it from three inputs: your age, the monthly amount you had in mind, and the age you'd like the option to stop working.