Indexed universal life (IUL)
Permanent life insurance with cash value that can grow — without direct market risk.
An IUL pairs a lifelong death benefit with a cash value account credited based on a market index like the S&P 500. You get upside up to a cap, and a floor that protects against index losses. It's powerful for the right person — and wrong for others. We'll show you both sides.
- Lifetime coverage if funded
- Tax-advantaged cash value
- Living benefit riders
How it works
How IUL interest crediting works
Step 1
Index
Your cash value tracks an index such as the S&P 500 — you're not invested in the market directly.
Step 2
Cap
The maximum rate you can be credited in a period, even if the index does better.
Step 3
Floor
The minimum credit, often 0%. A down year means no gain — but no index loss either.
Step 4
Participation rate
The share of the index gain you receive, up to the cap.
Read the fine print
Costs
Premium loads come out of each payment, and cost of insurance and admin charges come out of cash value every month. Cost of insurance rises with age.
Using the cash
Access
Borrow against or withdraw cash value later. Loans are generally income-tax-free while the policy stays in force and isn't a modified endowment contract (MEC).
IUL pros and cons — honestly
Pros
- ✓ Lifetime death benefit
- ✓ Floor protects against index losses
- ✓ Tax-deferred cash value growth
- ✓ Flexible premiums
- ✓ Often includes living-benefit riders
Cons
- ✕ Caps limit your upside
- ✕ Fees and cost of insurance rise with age
- ✕ Underfunding can cause a lapse
- ✕ Illustrations are not guarantees
- ✕ Needs a long time horizon (10+ years)
IUL vs. whole life vs. term
| Topic | IUL | Whole life | Term |
|---|---|---|---|
| Coverage length | Lifetime (if funded) | Lifetime | 10–30 years |
| Cash value growth | Index-linked, floor + cap | Guaranteed rate + possible dividends | None |
| Premium flexibility | Flexible | Fixed | Fixed |
| Best for | Long horizon, max-funding, flexibility | Guarantees and simplicity | Lowest-cost protection |
IUL FAQ
Is an IUL a good investment?
It's life insurance first. For people who have maxed out other tax-advantaged accounts and want permanent coverage, an IUL can be a strong tool. For people who mainly need affordable protection, term life is usually the better buy.
IUL vs. 401(k): which is better?
They do different jobs. A 401(k) is a retirement account, often with an employer match you should capture first. An IUL is permanent life insurance that can build cash value you may access through policy loans. Many people consider an IUL only after getting their full match.
Can I lose money in an IUL?
The floor protects credited interest from negative index returns, but policy charges keep coming out every month. In a year with a 0% credit, your cash value can go down. Underfunding the policy can also cause it to lapse.
What happens if I stop paying premiums?
Premiums are flexible, but monthly charges are deducted from cash value. If the cash value can't cover them, the policy can lapse. We'll show you how much to fund it to keep it healthy.
How do IUL policy loans work?
You can borrow against your cash value, generally without income tax while the policy stays in force and isn't a modified endowment contract (MEC). Loans accrue interest and reduce the death benefit, and if the policy lapses with a loan outstanding it can create a tax bill.
Sources
Last reviewed by a licensed agent. Figures change each year — confirm current amounts at the sources above.
Get a straight answer on IULs.
We compare illustrations from multiple carriers — and tell you if term is the better buy.