Indexed Universal Life Insurance

Not every life insurance policy is only about paying out a death benefit to your loved ones. You can actually use your life insurance policy as an investment tool. Indexed universal life insurance is one such policy.

What is indexed universal life insurance?

Indexed universal life insurance (IUL), is a type of permanent life insurance policy that takes the cash value the policy builds over time and uses an equity index to determine how much interest that cash value receives periodically.

As a result, you enjoy an investment tool that you can withdraw from or borrow against (with limits), and receive other benefits in addition to a death benefit. Here are some of the features that most IUL insurance policies offer:

Cash Value Growth

Because your insurance carrier regularly credits interest to your policy’s cash value based upon the performance of the equity index, this cash value can grow more quickly than through whole life insurance. Guaranteed interest levels also ensure that your cash value will grow at a certain rate and that you will never lose money from your cash value’s original amount.

Tax Advantages

An IUL policy provides certain tax advantages, such as tax-free benefits upon your death and tax-deferred growth of the policy’s cash value.

Flexible Premiums and Death Benefits

Unlike many other types of life insurance, you can choose to pay your premiums out of your cash value. In addition, you can adjust the amount of death benefit you receive. Just be aware: You may need to undergo another medical exam in order to increase your death benefits.

What are the downsides to indexed universal life insurance?

Indexed universal life insurance does have some features you should consider before purchasing.

Limited Gains

The amount of interest you can earn from an IUL policy is usually capped by your carrier. That means that your IUL should not serve as your only or even primary investment tool.


While not the riskiest form of life insurance you can choose, IUL does carry some risk based on the variance possible in the interest rate you earn.

Rising Premiums

Flexible premiums mean that your payments can rise over time. If you fail to keep up with these payments, you may see a reduction in or even a cancellation of your death benefits.

High Fees

IUL policies tend to come with extra fees and costs that can drive up the price of your policy. Make sure you understand all your fees and when you will need to pay them before committing to one of these policies.


IUL policies tend to be more complicated than other types of insurance, such as term life insurance. As a result, make sure you receive expert guidance to navigate your options and find the best IUL policy for you.

Why consider indexed universal life insurance?

An IUL policy can be beneficial if you want to earn returns on your life insurance instead of just using your policy to provide death benefits to your loved ones. An IUL policy can help you build a cash value that you can use while you are still alive.