Indexed Universal Life
Also called IUL, equity-indexed universal life, EIUL
A permanent life policy whose cash value earns interest tied to a stock index — capped on the upside, floored at zero, and loaded with costs that rise as you age.
Indexed universal life is a permanent life insurance policy — designed to last your whole life and build cash value — with one twist: instead of a fixed interest rate, the cash value is credited based on the movement of a stock-market index like the S&P 500.
The pitch is seductive: “market-linked gains with none of the market losses.” And the floor is real — in a down year, your credited rate won’t go negative. But three levers, all controlled by the insurance company and most of them adjustable after you buy, decide what you actually earn:
- The cap rate limits your upside. The index might return 20%; your policy credits maybe 8–10%.
- The participation rate may hand you only a fraction of the index move before the cap even applies.
- The cost of insurance is subtracted every month — and it rises every year as you age.
Put those together and the honest expected return on an IUL is far below the 6–8% that sales illustrations love to assume. Credit the index in zero years too often, keep paying a climbing cost of insurance, and the whole structure can collapse decades in.
None of this makes IUL a scam. It makes it a complex, cost-heavy product that is routinely sold on its best-case illustration to people who would be far better served by term life. If someone is showing you an IUL, the single most useful thing you can do is ask to see the guaranteed column — the numbers the company is actually contractually bound to.
IUL is the most aggressively-sold permanent product on the market, and the illustration you're shown almost always assumes a rate the policy can't guarantee. The gap between the sales rate and the guaranteed floor is exactly where families get hurt.
An agent illustrates a flat 7% for 30 years and shows a six-figure cash value. But the contract only guarantees 0–2%, caps your real credited rate around 8–10%, and deducts a rising cost of insurance every month. Re-run the same policy at its guaranteed column and it can lapse in your 70s — taking every premium you paid with it.
Any IUL illustration run at more than ~5–6%. Ask for the guaranteed column and a 0%-return stress test. If the agent can't — or won't — show them, that reluctance is your answer.