Indexed Universal Life Insurance (IUL)

Indexed universal life insurance is a form of permanent life insurance that may provide flexible premiums, a death benefit, and potential cash value growth based in part on the performance of a market index.

What an IUL Is

An Indexed Universal Life (IUL) policy is a type of permanent life insurance, meaning it can provide lifelong coverage. It combines a death benefit with a cash value component that can grow over time. It is unique because it allows policyholders to link their cash value growth potential to the performance of a stock market index, such as the S&P 500, while still maintaining a level of downside protection.

How Index-Linked Crediting Generally Works

An IUL does not directly invest in the stock market. Instead, interest crediting is linked to the performance of an external index. The policy typically features a "floor" (often 0%), which protects your cash value from market losses, as well as "caps" or "participation rates" that limit the maximum interest credited during strong market years.

Cash Value and Flexibility

IUL policies offer significant flexibility. Policyholders can often adjust their premium payments and death benefit amounts over time to match changing financial circumstances. Accumulated cash value can be accessed via policy loans or withdrawals to help fund retirement, education, or other major life expenses.

Important Costs and Policy Considerations

Because IUL is a complex financial product, it is important to understand the associated costs. These can include cost of insurance (COI) charges, administrative fees, surrender charges, and expense loads. These fees are deducted from the cash value, and if the cash value is insufficient to cover them, additional premiums may be required to keep the policy in force.

Disclosure: Policy performance, cash value accumulation, crediting methods, charges, loans, withdrawals, and guarantees vary by carrier and policy. Policy loans and withdrawals may reduce available cash value and death benefits and may have tax consequences.