01
Pay a premium
Premiums are split between the cost of insurance and the cash value account.
What it is
A permanent life insurance policy that pairs a death benefit with a cash value account tied to a market index.
Indexed Universal Life, usually abbreviated IUL, is a type of permanent life insurance. Unlike term insurance, it does not expire after a set number of years. As long as premiums are paid, the policy stays in force for life and pays a death benefit to your beneficiary.
What makes IUL distinct is the cash value component. A portion of each premium accumulates inside the policy and earns interest tied to the performance of a stock market index, most commonly the S&P 500. In years the index rises, your cash value grows up to a cap set by the insurer. In years the index falls, you earn a guaranteed floor, typically 0%, meaning you do not lose principal to market downturns.
How it works
The mechanics, in plain language.
02
Cash value grows tied to an index
The cash value earns interest based on a market index, capped at a maximum and floored at a guaranteed minimum.
03
Access the cash value
Once cash value has accumulated, you can borrow against it tax-free or withdraw it (up to the amount you have paid in) without triggering income tax.
04
Death benefit pays out
If you pass away while the policy is in force, your beneficiary receives the death benefit, generally income-tax-free.
Fit
Is this product right for you?
Likely a good fit
- High-income earners who have already maxed out their 401(k) and IRA contributions
- People looking for a tax-advantaged way to supplement retirement income
- Anyone wanting permanent life insurance plus a cash value component
- Long time horizons of 15 years or more
Probably not the right fit
- People who need the cheapest possible life insurance. Term is far less expensive
- Short-term coverage needs of 5 to 10 years
- People without dependents or estate planning needs
- Anyone who cannot reliably fund premiums for the long term
Key terms
The vocabulary you'll hear.
- Cap rate
- The maximum interest credited to your cash value in a given year, regardless of how high the index rises.
- Floor
- The minimum interest credited, usually 0%, protecting principal in down years.
- Participation rate
- The percentage of the index gain that is credited to your account. A 60% participation rate means a 10% index gain credits 6%.
- Cost of insurance
- The portion of your premium that pays for the death benefit itself.
- Cash surrender value
- The amount you would receive if you canceled the policy, after any surrender charges.
FAQ
Common questions
Is the cash value invested in the stock market?
No. Your cash value earns interest tied to the performance of an index, but it is not directly invested in the market. The insurance company manages the underlying assets; you participate in the index gains within the cap and floor structure.
How do taxes work?
Cash value grows tax-deferred. Loans taken against the policy are tax-free as long as the policy stays in force. The death benefit is generally income-tax-free for your beneficiary.
What happens if I stop paying premiums?
If accumulated cash value can cover the cost of insurance, the policy stays in force temporarily. Once cash value is exhausted, the policy lapses and coverage ends. Some policies offer flexibility to pause or reduce premiums.