What is Index Universal Life (IUL) insurance and how does it work?
Index Universal Life (IUL) is a type of permanent life insurance that offers a death benefit and a way to grow cash value linked to a market index.
It’s popular for those who want lifelong protection and potential for tax-advantaged growth.
Here’s how IUL works:
- Lifelong Coverage: As long as premiums are paid, your policy stays active for life.
- Cash Value Growth: A portion of your premium builds cash value, which grows based on a stock market index (like the S&P 500).
- No Direct Investment: Your money isn’t invested directly in the market, so it can’t lose value due to market downturns.
- Growth Cap & Floor: There’s usually a cap (e.g. 9–12%) and a floor (0% or 1%) to protect your account during market dips.
- Tax-Free Loans: You can borrow from your cash value tax-free (if structured properly).
- Flexible Premiums: You can adjust your payments within certain limits.
- Death Benefit: When you pass, your beneficiaries receive the death benefit tax-free.
Why people choose IUL:
- Tax-Free Retirement Income
You can access your cash value later in life through policy loans — without paying income tax. - Protection + Growth
It combines the safety of life insurance with the potential growth of market-linked interest. - Legacy Planning
You can leave a guaranteed, tax-free benefit to your loved ones. - Downside Protection
Even if the market crashes, you never lose your principal cash value due to a 0% floor.
How IUL might perform
Let’s say you put $500/month into an IUL at age 30. Over time:
- Some of your payment covers the cost of insurance
- The rest grows tax-deferred in the cash value account
- By age 60+, you may have built up six figures in tax-free accessible cash
- You can take loans against the cash value for retirement or emergencies
(Always consult a licensed agent for an illustration customized to your age and health.)
Quick Definitions:
- Indexed: Linked to a market index like the S&P 500
- Universal: Flexible premiums and adjustable death benefit
- Life Insurance: Pays out when you pass away
IUL is NOT:
- A short-term investment
- A guaranteed retirement solution
- A risk-free product (fees and caps may apply)
It’s best used as a long-term strategy — especially for those with steady income who want tax-advantaged growth.
Index Universal Life (IUL) is permanent life insurance that offers a death benefit and grows cash value based on a market index. It provides tax-free growth potential, downside protection, and can be used for retirement income or legacy planning. Premiums are flexible, and loans from the policy can be taken tax-free.
