Indexed Universal Life Insurance (IULs)

Indexed Universal Life insurance, also known as IUL, is a type of life insurance that offers a different way to grow cash within the policy.

While the primary purpose of such a policy is the death benefit associated with life insurance, many insurance agents are suggesting the use of this product as a form of retirement savings and income.

An IUL is a type of policy that has cash value. It is the potential growth of this cash value that is often touted as a major benefit. The cash value growth potential is tied to an index, such as the S&P 500, hence the name “Indexed” Universal Life. If the index chosen within the policies does well, then there is a reasonable chance that your policy cash value will grow. The suggested strategy is to grow the cash value within this policy over time so that future withdrawals from the policy can be taken. However, this policy growth doesn’t always happen as planned or projected.

In one of our podcasts, we discuss some of the pros and cons of IULs. Many of the concerns with IULs are the same with traditional Universal Life policies as discussed in this video.

Here are the general pros and cons we discuss on this podcast:

Pros of Indexed Universal Life:

  • Death benefit
  • Flexible premiums – can adjust the amount paid into the policy as needed
  • Upside potential to cash value – account is credited based on indexes and can be higher than traditional whole life policies
  • Income potential – cash build-up within may be accessed tax free
  • Gains are lock-in – each year gains are locked in and a floor is set on losses
  • Tax deferral and no required distributions

Cons of Indexed Universal Life:

  • Oversold when other tools are available with less fees or restrictions
  • Limits on returns – caps are set on the upside
  • Increased growth not guaranteed
  • Costs and fees increase with age
  • Index returns don’t include dividends
  • Can be confusing and easily designed poorly

If you currently own an indexed universal life insurance policy and are concerned it isn’t designed well or working well for you, be sure to watch this video on Fixing Universal Life Insurance policies.


Indexed Universal Life insurance is a tool that can be used correctly or incorrectly. While the purpose of life insurance is beneficial for many reasons, the push to use it as a means of generating retirement income should be approached cautiously. An IUL policy could be designed to create future tax free income. However, this strategy is normally applied in situations of high net worth and income. It often is “sold” to people who have other, more practical, and less costly tactics available. One should definitely use caution before designing or purchasing an insurance policy for anything beyond death benefit.

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