Indexed Universal Life, or IUL, is permanent life insurance with two parts: a death benefit for your beneficiaries, and a cash value account that can grow over time.
How the cash value earns interest
Your money is not invested directly in the stock market. Instead, the carrier credits interest based on how a market index, such as the S&P 500, performs over a period, subject to limits.
- Cap: the maximum interest you can be credited in a period.
- Floor: the minimum credit, often 0%, so an index drop does not reduce your credited interest.
- Participation rate: the percentage of the index gain used in the calculation.
What it costs
IUL policies deduct charges, including the cost of insurance, administrative fees and rider costs. These can reduce cash value, especially in the early years or if premiums are too low. A carrier illustration shows the assumptions.
Accessing the cash value
You can generally take policy loans or withdrawals. They reduce the death benefit and cash value, and if a policy lapses with a loan outstanding, there can be a tax bill. Used carefully and with ongoing reviews, it can be flexible. Used carelessly, it can backfire.
Who it may suit
People who want lifetime coverage, can fund premiums for many years and have already used employer retirement plans. It is usually not suited to those who need short-term access to cash.
See our IUL explained page for an interactive example. General education, not personalized advice.