Cash-value growth tied to a market index — with a floor
Indexed universal life is a permanent policy whose cash value can grow based on a market index like the S&P 500. A floor (often 0%) protects you from market losses, while a cap or participation rate limits the gains. Growth is tax-deferred.
IUL credits interest based on an index’s performance, but you’re not actually invested in the market. In a down year, the floor means you don’t lose cash value to market losses. In an up year, a cap or participation rate limits how much you’re credited. You give up some upside for protection from the downside.
Because cash value grows tax-deferred and policy loans can be tax-free when structured properly, some people use IUL as a supplemental, tax-advantaged source of retirement income.
IUL is powerful but complex. Caps and participation rates can change, and policy costs rise as you age, so realistic funding and regular reviews matter. Illustrations should be run conservatively. A licensed advisor can model it honestly against your goals.
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The index-linked floor protects your credited interest from market losses, but policy fees and the cost of insurance still apply, so an underfunded policy can lose cash value over time. Proper funding and periodic reviews are essential.