An IUL policy credits your cash value based on how a market index performs — but when the index falls, your value doesn't fall with it. You keep a permanent death benefit and a floor that never lets a bad year erase your progress.
Hypothetical 15-year sequence. Move the cap to see how much of the index's upside your policy keeps — the 0% floor never moves.
Every payment does two jobs at once — funding your death benefit and building cash value you can access later.
Part of it covers the cost of insurance and policy charges — the price of keeping your death benefit in force.
Your cash value isn't invested in the market directly. Instead, it's credited interest based on the change in an index you choose, like the S&P 500.
Each year's credited gain — up to your cap — becomes part of your new floor. A down market the following year can't take it back.
Six mechanics working together, not just one feature.
Credited interest never falls below 0% in a down year, regardless of how far the index drops.
Cash value accumulates without annual income tax on the gains, so more of each credited return stays invested.
Policy loans and withdrawals can typically be structured to reach cash value without triggering income tax, under current tax law.
Adjust how much and how often you pay, within policy limits, as your income and priorities change over time.
Beneficiaries generally receive the death benefit free of federal income tax, providing for the people who count on you.
Riders can let you access a portion of the death benefit early if you're diagnosed with a qualifying chronic or terminal illness.
Three tools built for different jobs. IUL trades some of whole life's fixed guarantees for a shot at higher index-linked growth.
| Term life | Whole life | Index universal life | |
|---|---|---|---|
| Premium flexibility | Fixed, fixed term | Fixed for life | Adjustable within limits |
| Cash value growth | None | Fixed, guaranteed rate | Index-linked, capped upside |
| Downside protection | N/A | Guaranteed minimums | 0% floor on credited interest |
| Coverage length | Expires at term end | Lifelong | Lifelong, if funded properly |
| Access to cash value | None | Loans against guaranteed value | Loans against index-linked value |
| Best suited for | Temporary needs, lowest initial cost | Predictability above all else | Growth potential with a floor, plus permanent coverage |
The Alvarez family, both age 35, start an IUL policy with a $500 monthly premium, a 10% cap, and a 0% floor. Assuming an illustrative average annual index return, here's how the numbers could unfold by age 65 — before any policy loans are taken.
Entirely hypothetical. Actual results depend on the carrier, the index, fees, cost of insurance, and real market performance, and are not guaranteed.
No. Your premium isn't invested directly. The insurer tracks the change in an index, like the S&P 500, and credits interest to your cash value based on a formula that includes a cap and a floor. You never own shares of the index itself.
The credited interest itself has a 0% floor, so a falling index won't reduce your cash value in a given year. That said, policy charges, cost of insurance, and any outstanding loans still apply and can reduce cash value or cause a policy to lapse if it's underfunded.
The cap is the maximum credited return in a strong year, and the participation rate determines what share of the index's gain counts toward that credit. Both are set by the carrier and can change over time within the policy's guaranteed minimums.
Because premiums are flexible, a missed payment doesn't automatically end the policy as long as there's enough cash value to cover policy charges. If cash value runs too low, though, the policy can lapse, so it's worth tracking funding levels over time.
Loans against cash value are generally not treated as taxable income under current tax law, as long as the policy stays in force and isn't classified as a modified endowment contract. An outstanding loan does reduce the death benefit and cash value, and can cause the policy to lapse if left unmanaged.
Don Gordon Life and Health Insurance Services can build a personalized illustration based on your age, health, and goals.