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What is an IUL or Index Universal Life Insurance Policy

Indexed universal life insurance or IUL account is a type of permanent life insurance coverage that offers both death benefit protection and a cash value component.

The funds within the cash value are allowed to take part in the growth of an underlying market index, such as the S&P 500, while at the same time being protected from negative market downturns.

This is why, for many people, indexed universal life insurance can essentially provide the “best of both worlds” – the opportunity for growth, along with principal protection. No other life insurance policy can offer as much opportunity for cash value growth, as an IUL.  We named these policies the king of cash value life insurance.

How Does an IUL Work?

While indexed universal insurance works in many ways like a regular universal life insurance policy, there are also some key differences that can make this product an important tool for both financial protection of survivors, and also for retirement planning.

First, indexed universal life insurance policyholders have the opportunity for additional cash value growth due to the upward movement potential of the underlying market index – yet at the same time, indexed UL policies also provide a guaranteed rate of minimum interest.

This means that there is a “floor” below which the policy holder’s interest rate will not fall – which will, in turn, provide them with principal protection during a market downturn.

What really makes an indexed universal life policy different is the crediting method that is used in calculating the changes in the underlying index. There are actually different factors that can be involved in tracking these changes. These may include:

Key Policy IUL Definitions

IUL Caps.

In return for principal protection, policy holders’ upward potential is typically “capped” at a certain percentage, or “cap rate,” of the underlying index’s growth within a certain period of time. So, for instance, a policy holder may only receive 90% of a 10% upward market movement – or a total of 9% – during a given year.

IUL Floors.

The floor is essentially a minimum guaranteed rate of interest that a policy holder will receive each year. Oftentimes, this may be 0%. However, this still means that there will be no loss – even if the index itself sustains a loss. So, if the index were to suffer a loss of 10% – or even 25% – in a give year, the policy holder would not lose a penny due to the guaranteed minimum floor.

IUL Participation Rates.

The participation rate will determine how much of the underlying index’s increase will be used in computing the indexed interest rate. For instance, if the participation rate is 100%, then the policy holder would receive 100% of the indexed interest that is achieved within a certain time period.

Why Consider an Indexed Universal Life Insurance Policy?

There are many reasons to consider an indexed UL policy as a part of your overall planning strategy. In addition to the tax free death benefit that is received by the policy’s beneficiary it’s also a source for tax free income in retirement and tax free growth on all gains in the cash value account. There are numerous advantages that these plans bring to the table during a policy holder’s life.

  • Flexibility of timing and placement of premium
  • Principal protection
  • High percentage of cash value accumulation
  • Tax-free receipt of funds in retirement
  • Annual reset of cash value gains
  • No minimum age requirement (as versus that of IRAs and other qualified plans)
  • No mandatory Required Minimum Distribution withdrawal requirement
  • Funds can avoid probate
  • Cash value may also be protected from creditors

Allocating the IUL Premium

When making your IUL premium payment, the policy holder may be able to choose different deposit options. Some insurance carriers use what is known as a “bucket” strategy for allocating the premium dollars.

For instance, each premium payment could be handled as a separate “bucket” – either fixed or indexed – and within the indexed buckets, they could even have different index starting points, different possible credited interest rates, and even different annual reset points with which to begin the next index period.

Example IUL Investment Choices.

As an example, a policy holder may be able to choose from options such as the S&P 500, the Russell, the Dow Jones, the Gold Index, PIMCO and Bloomberg and even from a variety of different foreign market indexes depending on the insurance company.

IUL Pros & Cons

IUL have many pros but lets start with the most important ones. Why do the rich invest in IUL’s? The tax advantages.


Indexed Universal Life (IUL) insurance policies provide a unique and powerful triple tax advantage. First, the gains within the policy grow tax-free. This means that as your cash value accumulates over the years, you won’t owe any taxes on the interest or investment gains, allowing your money to compound more efficiently.

Secondly, when it comes time to access the funds within your IUL policy, the income you receive can also be tax-free. By taking loans or withdrawals from your policy, you can enjoy the financial benefits without worrying about incurring income tax, providing a valuable source of tax-free income during your retirement or in times of need.

Lastly, the tax benefits extend to your beneficiaries. Upon your death, the death benefit paid to your loved ones is typically received entirely tax-free. This ensures that your heirs can inherit your wealth without the burden of estate taxes, making IUL policies an effective tool for estate planning and the tax-efficient transfer of wealth to the next generation.

In summary, the triple tax advantage of IUL policies encompasses tax-free gains, tax-free income, and a tax-free transfer of wealth upon death, making them a compelling option for those seeking both financial security and tax efficiency.


One significant drawback of Indexed Universal Life (IUL) insurance policies is the stringent health qualifications required for eligibility. To secure an IUL policy, individuals must be in good health and meet the carrier’s underwriting standards. This may involve medical exams and scrutiny of your health history. If you have pre-existing health conditions or are not in optimal health, you may encounter difficulties in obtaining an IUL policy, limiting your access to the benefits it offers.

Another important consideration is the potential for changes in caps and participation rates. IUL policies link their cash value growth to the performance of a selected stock market index. While this can provide opportunities for significant returns, it’s essential to choose a carrier with a proven track record of sustaining these rates. Some carriers may adjust these factors over time, affecting the policy’s growth potential. Therefore, careful carrier selection is crucial to ensure the long-term effectiveness of an IUL policy.


How is an IUL different than term life insurance?

Indexed Universal Life (IUL) insurance and term life insurance differ in several key aspects. Term life insurance offers coverage for a specified term, typically 10, 20, or 30 years, with lower initial premiums that can increase upon renewal. In contrast, IUL is a permanent life insurance policy that provides coverage for a lifetime, with higher premiums. Notably, IUL policies also have a cash value component, allowing a portion of the premium to accumulate over time, potentially providing both a death benefit and a savings element. These distinctions make IUL more suitable for those seeking long-term coverage with potential investment benefits, while term life insurance is generally chosen for its affordability and straightforward protection for a specific term.

What type of return can I expect in my IUL insurance?

Indexed Universal Life (IUL) insurance policies offer a unique investment structure characterized by a crucial safety feature: a floor of zero for all underlying indexes. This means that even if the selected indexes, such as the stock market S&P 500, perform poorly or incur losses, your IUL policy will not experience negative returns. In addition to this protection, IUL policies may feature multiplier bonuses and participation rates as high as 180%. These elements can play a pivotal role in potentially outperforming historical averages of the S&P 500. The multiplier bonuses magnify the credited interest, and a participation rate of 180% means you can capture a significant portion of the index’s gains. This combination of safeguards and growth potential makes IUL policies a compelling choice for individuals seeking the opportunity to accumulate wealth while ensuring their investments are shielded from market downturns.

It’s worth noting that our Indexed Universal Life (IUL) insurance policies have demonstrated remarkable performance in recent market conditions. At the end of the bull market in 2021, many of our customers enjoyed substantial returns, with some even achieving a remarkable 20% growth in their cash value. What’s even more impressive is that these policyholders experienced no losses in the 2022 bear market, thanks to the inherent floor of zero on all indexes. As we moved into 2023, we had clients locking in gains of 13.5%, further underscoring the strength and resilience of IUL policies in varying market scenarios. These results showcase the unique ability of IUL insurance to provide the dual benefits of growth potential and downside protection, making it an attractive choice for individuals looking to secure their financial future.

Compare Rates, Caps and Cost of Insurance From the Best Companies.

In conclusion, making informed decisions about your financial security and future is paramount, and we are here to assist you every step of the way. As your trusted independent insurance agent with access to a vast network of over 25 insurance carriers, we offer personalized solutions tailored to your specific needs.

Contact us today to embark on the journey of securing an Indexed Universal Life (IUL) insurance policy that aligns with your unique goals and circumstances. Our team is dedicated to providing you with a comprehensive illustration that will empower you to visualize the benefits of an IUL policy.

Choose us as your agent, and you’ll benefit from our expertise, experience, and commitment to helping you achieve financial peace of mind. Don’t wait; take the next step toward securing your future today. Complete our IUL quote form, and let’s embark on this financial journey together.

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