Life Insurance

What is Indexed Universal Life Insurance (IUL)? Understanding IUL Insurance Policies and Coverage

May 21, 2024
Indexed Universal Life Insurance (IUL)

When planning for the future, you want to try to give yourself the best possible chance for peace of mind, and financial security for you and your loved ones. This usually requires some combination of insurance and investments that have good growth potential over the longer term. 

So what if we told you there was a life insurance option that combines peace of mind for your loved ones when you pass along with the opportunity to generate additional earnings based on specific index account performance? Indexed Universal Life Insurance, often abbreviated as IUL or referred to as IUL insurance, is a dynamic blend of life coverage and a cash value component that can grow depending on the performance of popular market indexes. If you’re thinking about which type of life insurance might be best for you, IUL insurance is worth considering.

Learn more about how an IUL account functions, how it compares to guaranteed universal life insurance, some pros and cons, and what policyholders need to know. 

What is Indexed Universal Life insurance?

IUL insurance is a type of permanent life insurance. . It not only guarantees a death benefit, but has a cash value component. The defining trait of an IUL policy is its growth potential, as it’s tied to specific index accounts. This feature gives policyholders a taste of the index account's upsides, but there are also built-in safety nets to help offset some of the risk.

Core features of IUL life insurance

In addition to its cash value growth tied to market indexes, , here are some of the other key attributes of an IUL Life Insurance policy:

  • Adjustable premiums: IUL policies typically afford their holders some payment flexibility, adapting to diverse income structures.
  • Minimum interest rate: Regardless of stock market fluctuations, an IUL account guarantees a baseline interest rate, offering peace of mind against market downtrends.
  • Return caps: While IUL insurance can tap into index market highs, there’s usually a ceiling on returns.
  • Death benefit: A hallmark of all life insurance products, IUL policies also promise a death benefit for beneficiaries while coverage is active.
  • Tax-deferred growth: Gains in an IUL account are tax-deferred, so there are no immediate tax obligations on accumulating profits.
  • Loan and withdrawal options: While accessible, any financial interactions with the IUL policy’s cash value, like loans or withdrawals, must be approached judiciously to prevent depleting the death benefit or incurring taxes.

Indexed Universal Life Insurance (IUL) vs. Guaranteed Universal Life Insurance (GUL)

IUL policies provide life insurance coverage and offer a potential for higher returns on the cash value component based on stock market performance. Whereas GUL is designed primarily to provide a guaranteed death benefit at a lower cost than whole life insurance, focusing less on cash value accumulation.

It's essential to understand your long-term objectives, financial goals, and risk tolerance when choosing between these two products. Consulting with a financial advisor or insurance specialist can help clarify which option is best for your specific needs. 

In general, IUL is for individuals who are looking for a combination of life insurance, index-linked returns, and some flexibility in their policy. GUL is best suited for those who want the assurance of a guaranteed death benefit without the focus on cash value growth or the risks associated with market performance.

Some other key differences:


  1. Cash value growth : The cash value growth is tied to the performance of a specific stock market index. If the index performs well, the cash value benefits from higher returns, up to a capped limit.
  2. Flexibility : IUL policies tend to be more flexible, allowing policyholders to adjust premium payments, death benefits, and sometimes even switch between index options or fixed accounts.
  3. Premiums : Flexible, but their structure might be more complex, influenced by the policy's performance and charges.


  1. Cash value growth : Cash value growth in GUL policies is minimal compared to other permanent life insurance products. The primary selling point is the guaranteed death benefit.
  2. Flexibility : GUL offers less flexibility than IUL. The main goal is to maintain the guaranteed death benefit, so adjustments to premiums or benefits can be limited.
  3. Premiums : Typically level but guaranteed not to increase. They're structured to ensure the policy remains in force for the insured's lifetime.

Is an IUL policy suitable for your needs?

Understanding the pros and cons is pivotal before opting for an IUL insurance plan.

Pros of IUL

  • Growth potential: Being market-linked, IUL policies may yield better returns than fixed-rate investments.
  • Shield against market slides: With the index features within the product , your IUL policy can remain insulated against market slumps.

Cons of IUL

  • Complexity: There are a lot of terms to understand, from the caps, to participation rates, and more. An IUL policy demands careful attention.
  • Expense: Maintaining an IUL life insurance might require higher premiums than other insurance alternatives.
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Is an IUL insurance policy right for you?

IUL life insurance, with its lifelong death benefit and cash value growth  structure, can seem attractive. But to make it work in your favor, a deep dive into its features, backed by advice from an experienced life insurance agent, is indispensable. As always, keeping your overall financial objectives in context is important when choosing the right type of insurance policy.

Learn more about the different types of life insurance, including whole life insurance and term life insurance.

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