Indexed Universal Life Insurance (IUL)
IUL is a type of permanent life insurance designed first to provide financial protection for your family. It may also build cash value over time, with interest crediting linked in part to the performance of an external market index such as the S&P 500. Your money is not invested directly in the stock market or directly in the index.
Simply put: IUL combines life insurance protection with the potential to build cash value over time.
What Can IUL Do for You?
Protect Your Family
If the insured person dies while the policy is in force, the beneficiaries receive the death benefit.
Build Cash Value
The policy may accumulate cash value over time that can potentially be used for future financial goals.
Help During a Serious Illness
Some IUL policies include Living Benefits that may allow access to part of the death benefit during the insured person's lifetime if certain qualifying health conditions occur.
Create Additional Financial Flexibility
Accumulated cash value may potentially be used for retirement income supplementation, education costs, or other long-term financial goals.
IUL Basics
IUL is a type of permanent life insurance. Unlike some other types of life insurance, it may build cash value over time, and that growth is linked to the performance of an external index, such as the S&P 500.
Your money is not invested directly in the index. Index performance is used only to determine how much interest may be credited to the policy.
When you're considering an IUL, you'll typically be shown an illustration — an example of how the policy might perform in the future. Actual results may be higher or lower than what's shown in the illustration.
What Costs Does IUL Have?
IUL is not a free savings account. It's a life insurance policy, and it has costs.
IUL has life insurance costs, and administrative charges may apply. Optional Riders may have their own costs, and some policy costs may rise as the insured person gets older. Premiums need to be sufficient to support the policy.
If you cancel early: If the policy is cancelled during its early years, a surrender charge may apply, so the full accumulated value may not be available.
How Cash Value May Grow
IUL cash value growth may be linked to the performance of a stock market index. For example, when the index performs well, the policy may be credited with interest.
Many IUL policies include a floor that limits negative index crediting. A 0% floor does not mean the policy's cash value cannot decline, because policy charges may still be deducted.
The policy does not directly invest in the S&P 500 or any other index. Index performance is used only to determine how much interest may be credited.
Accessing Cash Value
Cash value may generally be accessed through withdrawals or policy loans, subject to the policy's terms. Policy loans charge interest. Large withdrawals or loans may reduce cash value and the death benefit and may increase the risk of policy lapse.
Life Insurance That May Also Help While You Are Living
Some IUL policies offer Living Benefits that may allow access to part of the death benefit during the insured person's lifetime if certain qualifying conditions are met.
Terminal Illness Rider
If the insured person is diagnosed with a qualifying terminal illness, the policy may allow access to part of the death benefit during life. Exact terms depend on the specific policy.
Chronic Illness Rider
If a serious chronic condition causes the insured person to need substantial help with daily activities, the policy may allow access to part of the death benefit. Exact terms depend on the specific policy.
Critical Illness Rider
Certain qualifying serious illnesses, such as some cancers, heart attack, or stroke, may allow the insured person to receive a benefit while living. Exact terms depend on the specific policy.
Long-Term Care Rider
The policy may provide access to funds that can help with qualifying long-term care expenses. Exact terms depend on the specific policy.
Chronic Illness and Long-Term Care Riders Are Not the Same
A Chronic Illness Rider may let you access part of the death benefit during a serious chronic condition. A Long-Term Care Rider is more specifically designed for long-term care needs.
IUL and Retirement Planning
Some people use long-term IUL cash value as one part of their overall retirement strategy. If sufficient cash value accumulates over time, it may potentially provide an additional source of funds during retirement.
IUL is not a 401(k), IRA, or pension and is not an automatic replacement for those retirement tools. But for some people, it may help build an additional part of a retirement plan.
Withdrawals and policy loans have their own rules. Loans charge interest, and large withdrawals or loans may reduce cash value and the death benefit.
IUL and a Child's Education
Some families may use accumulated IUL cash value for future education costs if sufficient cash value is available. IUL is not a plan specifically created for college savings.
- Tuition
- Housing
- Books
- Graduate or professional education
- Other major expenses
IUL vs. a 529 Plan
529 Plan
- Designed specifically for education savings
- Has special education-related tax rules
- Primarily intended for qualified education expenses
IUL
- First and foremost life insurance
- May build cash value
- Cash value is not limited only to education expenses
- Provides life insurance protection
- Includes policy costs
One Policy — Several Possible Financial Goals
Not every IUL policy includes every feature. Availability, terms, costs, and limits vary by insurer, product, and state.
What to Know Before Buying IUL
Results Are Not Guaranteed
Actual cash value growth may be higher or lower than the results shown in an illustration.
The Policy Has Costs
Policy charges may reduce cash-value accumulation, and some costs may rise over time.
Additional Premium May Be Needed
If policy performance is lower than expected, additional premium may be needed to keep the policy adequately supported.
Policy Loans Are Not Free Money
Interest is charged on policy loans.
Large Withdrawals or Loans Affect the Policy
They may reduce remaining cash value and life insurance protection.
An Illustration Is Only an Example
Non-guaranteed values shown in an illustration are not promises of future performance. Actual results may be better or worse.
Who Might Consider IUL?
IUL may be worth considering for someone who needs permanent life insurance and also wants the potential to build cash value over time.
- You want life insurance for the long term
- You want the potential to build cash value
- You have long-term financial goals
- You can consistently pay premiums over many years
IUL is not right for everyone. The choice depends on your goals, budget, insurance needs, and how long you expect to keep the policy.
How Do You Qualify for IUL?
The insurer may review your age, health, medications, tobacco use, height and weight, and other health factors before issuing coverage.
Some applicants may need a medical exam, while others may qualify without one. Age and health affect pricing — younger, healthier applicants generally receive more favorable pricing.
Very large death benefits may require financial documentation.
What Is an IUL Illustration?
An IUL illustration is an example showing how a policy may perform over time. It typically shows both guaranteed and non-guaranteed values — the non-guaranteed values are based on assumptions about future performance.
Actual results may be higher or lower than illustrated. Do not make a decision based only on the most favorable projection shown.
Advanced Details
If You Want the Technical Details
Cap. The maximum amount of index growth that may be counted when determining credited interest.
Floor. The lower limit applied to negative index crediting. It does not prevent cash value from falling, because policy charges may still apply.
Participation Rate. Determines how much of the index's gain is used in the crediting calculation.
Segments. Cash value is credited on a periodic basis, commonly one-year cycles, each of which may have a different cap and participation rate.
Death benefit options. Some IUL policies offer more than one death benefit option. In one, the death benefit is more fixed; in another, accumulated cash value may affect the amount paid at death. The exact rules depend on the specific policy.
Cost of Insurance (COI). A monthly life insurance charge based on age, health, and the death benefit. This charge typically increases with age.
Administrative and Rider charges. Beyond the COI, a policy typically has a monthly administrative charge and, where applicable, an additional charge for each Rider.
Surrender Charge. Cancelling the policy early (often within the first 10 to 15 years) may reduce the amount you receive.
Guaranteed vs. non-guaranteed columns. An illustration typically shows two scenarios — a guaranteed one (using minimum assumptions) and a non-guaranteed one (using projected results). Reviewing both is important.
Participating Loan. Depending on the policy, some cash value may continue to receive index-linked crediting while a loan is outstanding. Loan interest still applies, so it's not free money. The actual outcome depends on the loan rate and the credit the policy receives.
MEC (Modified Endowment Contract). If too much premium is paid into the policy too quickly, it may become a Modified Endowment Contract, which can change the tax treatment of withdrawals and loans. Because of this, large premium payments call for planning in advance.
Unlike VUL, IUL cash value is not placed directly in investment sub-accounts.
Financial underwriting on larger policies. For a large death benefit, the insurer may request additional documentation of income and net worth.
Business and estate planning. Some business owners use IUL in executive benefit programs. IUL policies are also sometimes used in estate planning, including through Irrevocable Life Insurance Trusts (ILITs). Both situations are complex and call for legal and tax guidance.
IUL FAQs
Is IUL right for everyone?
No. IUL can be a good choice for some people, but not everyone. The right choice depends on your life insurance needs, financial goals, budget, and time horizon.
Can cash value be lower than expected?
Yes. Actual results may be lower or higher than illustrated, because results depend on both index-linked crediting and policy charges.
What states does Whitestone Insurance serve for IUL?
Whitestone Insurance Services LLC is currently licensed for life insurance in New York, New Jersey, Connecticut, Pennsylvania, Ohio, Delaware, and South Carolina. Product availability and specific carrier options vary by state. Contact us to confirm availability and discuss options for your state of residence.
Is IUL life insurance?
Yes — it's a type of permanent life insurance that can also build cash value over time.
Can IUL build cash value?
Yes, a policy may accumulate cash value over time.
Can I use the accumulated cash value?
Yes. If sufficient cash value has accumulated, you can typically access it through a withdrawal or a policy loan.
Can I use IUL as part of retirement planning?
For some people, it can become part of a broader financial strategy — but keep in mind, IUL is not a 401(k), IRA, or pension.
Can I use it for a child's college costs?
Yes, if the policy has accumulated enough cash value, that money can also be used toward education costs.
What are Living Benefits?
These are additional features that, under certain qualifying health conditions, let you access part of the death benefit during your lifetime.
Schedule a Life Insurance Consultation
Have Questions About IUL?
If you want to understand whether IUL fits your goals, our licensed agents can explain how a specific policy works and help you compare it with other life insurance options.