Life Insurance
Indexed universal life — an IUL — is permanent life insurance whose cash value is credited based on the movement of an external market index, with a cap on gains and a floor that protects the cash value from index losses.
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Your premium does two things: it pays for the cost of the life insurance, and the remainder goes into the policy's cash value. The cash value is credited interest based on how a chosen index performed over a set period, subject to a cap on the upside and a guaranteed floor on the downside.
It is life insurance with a savings component, not an investment account. There is no direct ownership of any stock or fund.
The floor means that when the index falls, your cash value is not credited a loss — commonly 0% rather than negative. The cap means that when the index rises sharply, you only receive up to a set percentage. Participation rates and other crediting rules can also apply.
You give up some upside in exchange for not participating in the downside. That trade-off is the entire point of the product, and it is also why an IUL should never be described as a stock market investment.
Cash value can generally be accessed through policy loans or withdrawals. Loans accrue interest, and any unpaid loan balance reduces the death benefit. A withdrawal reduces the death benefit directly, and taking too much can cause the policy to lapse — which can create a taxable event.
We explain the mechanics on your specific policy, and we recommend confirming the tax treatment with your own tax advisor.
Within limits set by the carrier, you can pay more in a strong year and less in a lean one. That flexibility is genuinely useful for self-employed clients with uneven income.
It also carries a responsibility: consistently underfunding an IUL can put the policy at risk later. We build the funding level around what you can sustain, not what looks best on paper.
Many IUL policies offer accelerated death benefit riders that allow access to part of the death benefit if you are diagnosed with a qualifying terminal, chronic or critical illness. Availability and terms vary by carrier, and we will tell you exactly which riders are included rather than implying they are universal.
An IUL suits clients with a long time horizon, a stable ability to fund the policy, and a need for permanent coverage alongside tax-advantaged accumulation. It does not suit someone who needs money back in a few years, or someone who wants a straightforward savings account with no insurance component.
If term coverage plus a separate retirement account is the better answer for you, we will say so.
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