Indexed Universal Life Insurance (IUL) can build cash value, offer tax-advantaged income, and protect your family for life, but only if it’s structured correctly.
Used well, it’s a flexible long-term strategy. Used wrong, it can underperform and cost you. In this guide, we show you the best life insurance companies to meet your needs and things to consider as part of your underwriting.
What Is Indexed Universal Life Insurance?
Indexed Universal Life (IUL) is a permanent life insurance policy that provides:
- Lifelong coverage (as long as you keep it funded)
- Flexible premiums that you can adjust over time
- Cash value that grows based on a stock market index (like the S&P 500)
- Tax-advantaged access to your cash value via loans or withdrawals
You’re not investing directly in the stock market. Instead, the insurer credits your policy’s interest based on the performance of an index, subject to a cap (maximum gain) and a floor (usually 0%).
It’s a great alternative to more conservative whole life insurance, traditional universal life, or term life policies.
How IUL Works
Every year, your insurer looks at how the index (e.g., S&P 500) performed over 12 months. They credit your policy’s cash value based on that return, within limits.
Example mechanics:
- Cap rate: 10% – if the index gains 15%, you get 10%
- Floor rate: 0% – if the index loses 20%, you get 0%
- Participation rate: If it’s 80%, and the index gains 10%, you get 8%
You’re not investing in the market directly, so you avoid losses. But you’re also giving up the whole upside.
Pros and Cons of Indexed Universal Life Insurance
Pros:
- Cash value growth with no market downside
- Flexible premium and death benefit design
- Loans and withdrawals can be tax-free
- Can be used for retirement income, estate planning, or business succession
Cons:
- More complex than term or whole life
- Performance depends on caps, participation rates, and insurer adjustments
- Must be properly funded, or it can lapse
- Fees and insurance costs can reduce cash growth
Common Uses for IUL
- Supplemental retirement income (tax-free via loans)
- Legacy planning with a guaranteed death benefit
- Business planning (e.g., buy-sell, key person, or executive bonus plans)
- Living benefits for LTC or chronic illness (rider-based)
Companies That Offer Indexed Universal Life Insurance
Here are some of the top IUL providers and what makes them competitive:
| Carrier | Notable IUL Products | LTC Rider | Return of Premium |
|---|---|---|---|
| Lincoln Financial | WealthAccumulate 2, WealthPreserve 2 | Yes | Yes |
| Mutual of Omaha | Income Advantage IUL, Life Protection Adv. | Yes | No |
| John Hancock | Accumulation IUL, Protection IUL | Yes | Yes |
| MassMutual | Horizon ECV IUL | Yes | Yes |
| Nationwide | IUL Accumulator II, IUL Protector II | Yes | Yes |
| Pacific Life | Discovery Xelerator IUL | Yes | Yes |
| Securian | Eclipse Accumulator II, Eclipse Protector II | Yes | Yes |
| Transamerica | Financial Foundation IUL | Yes | No |
| North American | Builder Plus IUL 4, Smart Builder IUL 3 | No | Yes |
| Symetra | Accumulator Ascent IUL, Protector IUL | No | Yes |
These companies vary in how they structure policy charges, crediting strategies, and riders. Some, like Lincoln and Nationwide, are strong for LTC and ROP flexibility. Others, like North American, shine in cash accumulation.
Index Crediting Strategies
Most IULs use one or more of the following strategies:
- 1-Year S&P 500 Point-to-Point: Most common method with cap/floor
- Monthly Sum or Average: Smoother returns but often lower caps
- Blended Index Strategies: Combine S&P 500, bonds, and international markets
- Uncapped Options with Multipliers: Can boost gains, but may include asset charges
When comparing policies, look at:
- Cap rate
- Participation rate
- Bonus structure (if any)
- Guaranteed minimums
Riders to Consider
You can customize your policy with riders to provide you with the benefits you need.
Optional riders include:
- Chronic Illness Riders – Offers benefits for individuals with chronic, critical, or terminal illnesses.
- Overloan Protection – (helps avoid lapse during retirement withdrawals) – This is a must if you plan to withdraw cash in the future.
- Return of Premium (ROP) – Returns premiums if you cancel your policy, or may add the premiums paid to the death benefit.
- Waiver of Premium – Waives premiums if the individual becomes disabled.
- Early Cash Value Rider – Accelerates the accumulation of cash value in the policy.
Not all carriers offer both LTC and ROP. Some, like MassMutual and John Hancock, offer both on the same policy.
Ideal Candidates for IUL
IUL may be a good fit if you:
- Are under age 60 and can fund the policy for 10+ years
- Want long-term tax-free retirement income
- Can tolerate moderate risk and complexity
- Have maxed out your Roth IRA and 401(k)
- Want optional LTC or return-of-premium flexibility
It’s less ideal if you:
- Need low-cost term insurance
- Are overfunded without proper guidance (can lapse)
- Can’t commit to premium funding for the first 7–10 years
FAQs About Indexed Universal Life Insurance
Yes—if the policy is underfunded or over-loaned, you can cause the policy to lapse. As far as indexes, most are set up so that your worst-case crediting rate is 0% for the year.
It depends on your goals—retirement income, death benefit, LTC, or estate planning. We provide comparisons of multiple companies to help you choose the best option.
Your cash value won’t lose money due to market performance. The floor is usually 0%.
Not necessarily. But it can supplement a Roth IRA once you’ve maxed out qualified plans.
Final Thoughts
Indexed Universal Life Insurance is not a one-size-fits-all product. When designed and managed correctly, it can offer tax-free retirement income, lifetime protection, and access to living benefits.
However, success depends on selecting the right carrier, structuring premiums correctly, and working with someone who understands the mechanics of index universal life.
If you’re considering IUL, especially for income or LTC planning, reach out. We’ll compare top options and help you structure a policy that performs effectively.
