--- title: Indexed Universal Life Insurance | Woolley & Woolley Insurance Group description: Learn how indexed universal life insurance works, where it fits, how cash value grows, and what to watch for before choosing an IUL policy. image: https://www.woolleyins.com/hubfs/iul-featured-image.jpg --- [Skip to content](https://www.woolleyins.com/indexed-universal-life-insurance#main-content) [![WWIG Logo](https://www.woolleyins.com/hs-fs/hubfs/WW%20Logo.png?width=210&height=65&name=WW%20Logo.png)](https://www.woolleyins.com?hsLang=en) - [Home](https://www.woolleyins.com) - Services Show submenu for Services - [Life Insurance Solutions](https://www.woolleyins.com/life-insurance-solutions) Show submenu for Life Insurance Solutions - [Term Life Insurance](https://www.woolleyins.com/term-life-insurance) - [Permanent Life Insurance](https://www.woolleyins.com/permanent-life-insurance) - [Mortgage Protection](https://www.woolleyins.com/mortgage-protection-life-insurance) - [Life Insurance With Health Problems](https://www.woolleyins.com/life-insurance-with-health-problems) - [Life Insurance Policy Reviews](https://www.woolleyins.com/life-insurance-policy-review) - [Business Owner Life Insurance](https://www.woolleyins.com/business-owner-life-insurance) Show submenu for Business Owner Life Insurance - [Buy-Sell Life Insurance](https://www.woolleyins.com/buy-sell-life-insurance) - [SBA Loan Life Insurance](https://www.woolleyins.com/sba-loan-life-insurance) - [Key Person Life Insurance](https://www.woolleyins.com/key-person-life-insurance) - [Sell My Life Insurance Policy](https://www.woolleyins.com/sell-my-policy) - [Retirement Income & Annuities](https://www.woolleyins.com/retirement-income-and-annuities) - [Disability Solutions](https://www.woolleyins.com/disability-solutions) - [Start a Conversation](https://www.woolleyins.com/contact) - [About](https://www.woolleyins.com/about) - [Blog](https://www.woolleyins.com/woolley-woolley-insurance-group) Open main navigation Close main navigation - [Home](https://www.woolleyins.com) - Services Show submenu for Services - [Life Insurance Solutions](https://www.woolleyins.com/life-insurance-solutions) Show submenu for Life Insurance Solutions - [Term Life Insurance](https://www.woolleyins.com/term-life-insurance) - [Permanent Life Insurance](https://www.woolleyins.com/permanent-life-insurance) - [Mortgage Protection](https://www.woolleyins.com/mortgage-protection-life-insurance) - [Life Insurance With Health Problems](https://www.woolleyins.com/life-insurance-with-health-problems) - [Life Insurance Policy Reviews](https://www.woolleyins.com/life-insurance-policy-review) - [Business Owner Life Insurance](https://www.woolleyins.com/business-owner-life-insurance) Show submenu for Business Owner Life Insurance - [Buy-Sell Life Insurance](https://www.woolleyins.com/buy-sell-life-insurance) - [SBA Loan Life Insurance](https://www.woolleyins.com/sba-loan-life-insurance) - [Key Person Life Insurance](https://www.woolleyins.com/key-person-life-insurance) - [Sell My Life Insurance Policy](https://www.woolleyins.com/sell-my-policy) - [Retirement Income & Annuities](https://www.woolleyins.com/retirement-income-and-annuities) - [Disability Solutions](https://www.woolleyins.com/disability-solutions) - [Start a Conversation](https://www.woolleyins.com/contact) - [About](https://www.woolleyins.com/about) - [Blog](https://www.woolleyins.com/woolley-woolley-insurance-group) - [Life Insurance Rates](https://www.woolleyins.com/life-insurance-rate-calculator) [Life Insurance Rates](https://www.woolleyins.com/life-insurance-rate-calculator?hsLang=en) PERMANENT LIFE INSURANCE # Indexed Universal Life Insurance Designed for Flexibility IUL offers permanent death protection, flexible funding and greater cash-value growth potential when you're willing to trade some predictability for a few more moving parts. I'll help you decide whether IUL makes sense for what you're trying to accomplish—and if it does, how to design it around realistic assumptions that can hold up over time. [Start a Conversation](https://www.woolleyins.com/contact?contact_topic=Indexed%20Universal%20Life%20Insurance&hsLang=en) WHY ALL THE ATTENTION ## Why People Consider IUL Most people who seriously consider IUL want [permanent life insurance](https://www.woolleyins.com/permanent-life-insurance?hsLang=en), and they care about how the policy builds cash value as well as the flexibility available to them when it comes to funding it. That flexibility is especially useful for business owners and people with variable income from commissions, bonuses or business profits. After a strong year, you may want to put substantially more into the policy while retaining the option to return to your regular premium when income settles down. I've also worked with people who were in a position to jump-start a policy with a large initial lump-sum deposit, then support it with normal contributions moving forward. I've personally funded an IUL with a single premium. It gives me the permanent life insurance benefits I wanted while keeping cash available for other opportunities when they arise. That's a very different use of IUL than simply committing to the same premium every month for the next 20 or 30 years. IUL also fits high-income professionals and business owners who are already saving and investing aggressively and still have additional cash to put to work long term. For someone who earns too much to contribute directly to a Roth IRA, permanent life insurance provides another tax-advantaged bucket alongside the rest of their financial plan. Sometimes the goal is simpler: build a conservative long-term bucket with permanent life insurance and let the indexed cash-value growth be the icing on the cake. IUL can serve that role too. It doesn't need to replace your other long-term investments, pretend to be a Roth IRA or get dressed up as a so-called “7702 plan” to be useful. DESIGN MATTERS ## What Actually Makes an IUL Work The words “Indexed Universal Life” tell you what kind of policy you are looking at. They don't tell you whether it is a good policy or whether it has been designed well. 01 ### Fund it for the job Premium flexibility is useful, but an IUL still needs to be funded appropriately or its performance will fall short of what you expect it to accomplish. If a policy is designed around $12,000 per year and you consistently put in substantially less, you should expect a different result. I would rather build around a funding level you can realistically maintain and leave room to contribute more during stronger years than create a lackluster plan that disappoints years from now. 02 ### Keep the internal costs under control Internal policy costs are one of the first things I look at. If your goal is cash-value accumulation, I don't want to load the policy with unnecessary death benefit, expensive features or extra charges that will not help us accomplish your goal. Living benefits may be important. Bonuses, multipliers and enhanced crediting options may also look attractive. But every added feature needs to earn its place. Insurance companies rarely give something away for free. 03 ### Pay attention to the company behind the policy The carrier matters almost as much as the product. I look at financial strength, reputation, how the company has managed its products over time, and how it has maintained things such as cap and participation rates. A great-looking illustration becomes meaningless if we can't trust the company standing behind it. 04 ### Use assumptions you can live with I want to see what the policy looks like at a realistic long-term crediting rate, not just under the assumptions that make the illustration look its best. If an IUL only looks attractive under aggressive assumptions, I don't consider that a strong design. I want to see a policy that still makes sense when reality is less exciting than the sales presentation. The biggest number on the illustration rarely tells the whole story. BEHIND THE CREDITING RATE ## How Indexed Crediting Actually Works An IUL does not invest your cash value directly in the stock market. Instead, the insurance company uses the performance of a market index—such as the S&P 500—to determine how much interest is credited to the policy. ### You participate in part of the upside The amount credited depends on the policy’s indexing terms. A cap may limit how much of an index gain is credited, while a participation rate determines how much of that gain you receive. Some strategies use a spread or another crediting formula instead. That is why a 10% gain in an index does not necessarily mean your policy receives 10%. ### A 0% floor does not mean the policy cannot lose value Many IUL strategies have a 0% index-crediting floor. If the index has a negative year, the indexed account may receive no interest for that period rather than a negative credit. But policy charges still come out. Insurance costs, administrative charges and other expenses do not stop because the index had a bad year. Your cash value can decline from time to time even though it is not directly exposed to a market loss. Index performance is only the starting point STEP 1 The index moves Up, down or flat during the crediting period. STEP 2 The policy applies its rules Caps, participation rates, spreads or other crediting formulas determine the result. STEP 3 Interest is credited The credited rate is applied according to the policy’s terms. Policy charges are separate. ### The crediting terms matter over time Caps, participation rates and other crediting terms directly affect how much of the index performance makes its way into your policy. If those terms become less favorable over time, the policy may develop differently than the original illustration projected. That is one reason I pay attention to how a carrier has managed those terms over time—not just what the policy looks like on the day we buy it. IUL gives you indexed interest-crediting potential without directly investing the policy’s cash value in the market, but the policy still has rules, costs and limits that determine the long-term result. READ BEYOND THE PROJECTION ## The Illustration Is Not the Policy An illustration is useful because it shows how a policy is projected to perform under a specific set of assumptions. But it is still only a projection. The actual policy is the contract, the charges, the crediting rules and the way the policy is managed over time. THE ILLUSTRATION Shows a projection It depends on assumptions about crediting, charges, funding and policy behavior.   THE POLICY Determines the actual result The contract, charges, crediting terms and actual funding determine what happens over time. ### Look past the headline numbers It’s easy to fall into a trap when comparing IULs by simply looking at which illustration shows the highest cash value or income. I don't think those numbers alone tell you enough. I want to know what assumptions produced those numbers, what the policy costs internally and whether the design still looks good when we use a realistic long-term crediting rate. A lower illustrated number from a stronger design may be far more valuable than a bigger number built on aggressive assumptions. ### Bonuses can make an illustration look better Bonuses, multipliers and enhanced crediting features can improve illustrated values, but they usually come with a tradeoff somewhere in the policy. That does not make them bad. It just means we need to understand what we are giving up to get them and whether the feature actually helps accomplish your goal. ### The goal is a policy you can still feel good about years from now I would rather show you a design that makes sense under reasonable assumptions than sell you on the most exciting illustration available today. Years from now, the policy will be judged by what it actually delivered—not by how impressive the original sales presentation looked. WHEN IT'S TIME TO USE IT ## Accessing Your Cash Value Later Building cash value is only half the job. At some point, you may want to use it. One of the advantages of permanent life insurance is that you do not have to surrender the policy just to access the cash value. Withdrawals, policy loans or a combination of the two can provide access while the policy remains in force. ACCESS ### How you take the money matters A withdrawal and a policy loan are not the same thing. Withdrawals reduce policy value and may reduce the death benefit. Policy loans charge interest and affect how the policy performs while the loan is outstanding. Neither option is inherently good or bad. The important part is planning how you will access the money just as carefully as we planned how to put it in. TAX TREATMENT ### Tax treatment is one of the attractions—but it is not automatic Properly structured life insurance can provide tax-advantaged access to cash value. That is one reason IUL gets so much attention from people looking for future income. But I would be careful with anyone who simply calls it “tax-free retirement income.” The tax treatment depends on how the policy is structured, how the money is accessed and whether the policy remains in force. LONG-TERM DURABILITY ### The policy still has to work after you start using it An illustration showing years of future policy loans can look impressive. I want to know whether the policy can actually support those distributions over time. That means looking at the loan provisions, what remains in cash value and death benefit, and whether the policy can stay on track if future performance falls short of the original illustration. Getting money out of the policy deserves just as much attention as putting money into it. FIT BEFORE PRODUCT ## Where IUL Fits—and Where It May Not IUL works best when it has a clear job to do. A STRONGER FIT ### IUL tends to fit when You have enough cash flow to fund the policy properly without shortchanging emergency savings or the rest of your long-term investing. You value premium flexibility because your income changes from year to year, you have a lump sum to put to work, or you want the option to fund the policy more aggressively during stronger years. You want permanent life insurance and long-term cash value, but you are comfortable accepting a few more moving parts in exchange for indexed growth potential. You also understand that the policy needs time. IUL is generally a long-term tool, not a place to park money you may need next year. SLOW DOWN AND LOOK CLOSER ### I would be more cautious when The premium stretches your budget or depends on everything going perfectly. You place a higher value on guarantees and predictability than on flexibility or indexed growth potential. In that situation, Whole Life may deserve a closer look. You are mainly attracted to IUL because someone presented it as a replacement for your investments, a Roth IRA without limits, or a way to earn stock-market returns without taking any risk. Those are not the reasons I would recommend it. ### The better question is whether IUL fits the job you need it to do Sometimes the answer is yes. Sometimes Whole Life, [term life insurance](https://www.woolleyins.com/term-life-insurance?hsLang=en) or simply putting more money into your existing investments makes more sense. The product comes after the strategy. TWO PERMANENT OPTIONS ## IUL vs. Whole Life Both IUL and Whole Life provide permanent life insurance and the ability to build cash value. The difference is in how much flexibility, predictability and upside you want along the way. MORE PREDICTABILITY ### Whole Life Whole Life generally provides stronger contractual guarantees and a more predictable path for cash-value growth. Premiums, guarantees and policy structure are easier to understand up front, which appeals to people who value stability and consistency.   MORE FLEXIBILITY ### Indexed Universal Life IUL gives you more flexibility in how you fund the policy and more opportunity for indexed cash-value growth. In exchange, there are more moving parts to understand, including crediting assumptions, policy charges and how the carrier manages the product over time. ### Neither one is automatically better The right choice depends on the job you need the policy to do and which tradeoffs you are comfortable accepting. If predictability and guarantees matter most, Whole Life may be the better fit. If flexibility and indexed growth potential matter more, IUL may deserve the closer look. For a deeper look at the other side of the comparison, see our [Whole Life Insurance](https://www.woolleyins.com/whole-life-insurance?hsLang=en) page. HOW I USED IT ## A Real Example: One Policy, Several Jobs WHAT THE MONEY NEEDED TO DO The product came after the jobs were defined. 01 Provide permanent life insurance protection for my family. 02 Keep a meaningful amount of capital reasonably accessible. 03 Give the cash an opportunity to grow without putting it directly into the stock market. A few years ago, I had a sizable amount of cash that I wasn't ready to put into the stock market. At the same time, I wanted permanent life insurance on my Mom so that if she died first, I'd have additional resources available to help support my Dad. I had also recently started a real estate development project and believed I might need access to a large portion of that cash within the next year. So the money had several jobs to do at once: provide life insurance protection, stay reasonably accessible and still have an opportunity to grow without putting the money directly into the market. I used a single-premium IUL. It provided the death benefit I wanted, gave me a way to access the cash if the development needed it and allowed the cash value to participate in indexed growth. I compared several IUL companies and felt I had optimized the policy around what I wanted it to accomplish. Looking back, there is one meaningful thing I would do differently: I would spend a little more time comparing the IUL against Whole Life before making the final decision. At the time, I believed the IUL options available to me would outperform the Whole Life contracts I had access to. I would probably still make the same basic decision today, but I would make that comparison much more thoroughly. The development ultimately required much less capital than I originally expected. Rather than borrow against this policy and potentially affect the death benefit I wanted available for my Dad, I used cash value from another established permanent policy I owned and left the IUL alone. Flexibility has value even when you never use it. The goal was never simply to put money into an IUL. It was to give one pool of money several useful jobs while preserving the ability to change course as circumstances changed. The lesson is not that IUL was automatically the best product. The lesson is that the product should be designed to fit the jobs that are important to your overall plan. KEEPING IT ON TRACK ## Reviewing an IUL Over Time An IUL shouldn't be something you buy, put in a drawer and forget about for 20 years. I don't think most policies need to be dissected every twelve months, especially during the early years when they're still getting established. But every few years, I want to make sure the policy is still doing the job we designed it to do. ### Start with the original illustration I keep the original illustration because it gives us a useful benchmark. We can compare the actual cash value and death benefit against the non-guaranteed values that were originally illustrated and see whether the policy is running ahead, behind or reasonably close to expectations. If it is falling materially behind, I want to understand why rather than assume everything will work itself out. ### Look at what has changed We also review what the original illustration could not know in advance: actual index credits, current cap and participation rates, policy charges, loans or withdrawals, changes in funding and any changes to what you need the policy to accomplish. Sometimes the policy is doing exactly what it should. Sometimes an adjustment makes sense. And occasionally the original strategy itself has changed. ### Give the policy time to work Permanent life insurance usually takes time to build momentum. I often compare it to a train leaving the station—the early years can feel slow, but the economics can improve considerably as the policy matures. That is why I don't judge an IUL solely by its first year or two. What matters is whether the policy is developing in a way that supports the long-term job we gave it. A good IUL design matters on day one. Following it over time matters just as much. QUESTIONS WORTH ASKING ## Indexed Universal Life Insurance Questions What happens if I reduce or stop paying premiums? **The policy may continue, but it will not perform the same way it would have under the original funding plan.** Policy charges continue whether or not you make another premium payment. If you reduce or stop funding, the existing cash value may help carry those costs, but cash-value growth and the long-term durability of the policy can change substantially. That is one of the reasons I want to review the policy when your funding plans change rather than simply assume it will take care of itself. How soon can I access the cash value in an IUL? **Fairly early depending on the product, but that does not mean every dollar you put in is immediately available.** Early policy values can be affected by insurance costs and surrender charges, and the rules for loans and withdrawals vary by policy. If access to the money may be important in the first few years, that needs to be part of the design conversation from the beginning. Can an IUL become a Modified Endowment Contract (MEC)? **Yes. An IUL can become a MEC when too much premium is paid into the policy too quickly under federal tax rules.** A MEC is still life insurance, but loans and withdrawals receive different tax treatment. Gains generally come out first. If you're under age 59½, the taxable portion may also be subject to a 10% additional tax unless an exception applies. That is not automatically a problem. Sometimes a policy is intentionally designed as a MEC because tax-free access to the cash value is not the primary goal. The important part is knowing which one you are building and why. Does my beneficiary receive the cash value when I die? **It depends on how the death benefit is designed.** With a level death benefit, often called Option A, the beneficiary generally receives the stated death benefit, and the cash value is not paid on top of it as a separate amount. With an increasing death benefit, often called Option B, the death benefit generally increases as the cash value grows. In that type of design, the death benefit is generally the stated amount of insurance plus the policy's account value. That is why the death benefit option matters. It affects both how the policy accumulates and what ultimately passes to your beneficiaries.   Can I use an existing life insurance policy instead of buying a new IUL? **Absolutely, if the policy you already own can still do the job you need it to do.** I would rather understand what you already have before replacing it or adding another policy. Sometimes an existing policy should be kept exactly as it is. Sometimes it can be adjusted or used alongside a new policy. And sometimes replacing it makes sense—but the new product shouldn't automatically get the benefit of the doubt. START WITH THE STRATEGY ## Not Sure Whether IUL Fits? Start With What You’re Trying to Accomplish. If you're considering IUL, bring me the goal first. We can look at what you want the money and life insurance to do, what you're already doing with your savings and investments, and any illustrations or policies you already have. I'll help you compare the options, understand the tradeoffs and decide whether IUL actually belongs in the plan. [Start a Conversation](https://www.woolleyins.com/contact?contact_topic=Indexed%20Universal%20Life%20Insurance&hsLang=en) ![Kevin Woolley, founder of Woolley & Woolley Insurance Group](https://www.woolleyins.com/hubfs/kevin-woolley-founder-woolley-woolley-insurance-group.jpg) Kevin Woolley Founder | Woolley & Woolley Insurance Group [![Woolley & Woolley Insurance Group](https://www.woolleyins.com/hs-fs/hubfs/WW%20Logo.png?width=300&height=93&name=WW%20Logo.png "Woolley & Woolley Insurance Group")](https://woolleyins.com?hsLang=en) 5802 South 900 East Murray, UT 84121 801-999-8531 clientcare@woolleyins.com [Start a Conversation](https://www.woolleyins.com/contact?hsLang=en) **Pages** [Home](https://www.woolleyins.com?hsLang=en) Services    [Life Insurance Solutions](https://www.woolleyins.com/life-insurance-solutions?hsLang=en)       [Term Life Insurance](https://www.woolleyins.com/term-life-insurance?hsLang=en)       [Permanent Life Insurance](https://www.woolleyins.com/permanent-life-insurance?hsLang=en)          [Whole Life Insurance](https://www.woolleyins.com/whole-life-insurance?hsLang=en)          [Indexed Universal Life Insurance](https://www.woolleyins.com/indexed-universal-life-insurance) [      Mortgage Protection](https://www.woolleyins.com/mortgage-protection-life-insurance?hsLang=en)       [Life Insurance With Health Problems](https://www.woolleyins.com/life-insurance-with-health-problems?hsLang=en)     [ Life Insurance Policy Reviews](https://www.woolleyins.com/life-insurance-policy-review?hsLang=en) [Business Owner Life Insurance](https://www.woolleyins.com/business-owner-life-insurance?hsLang=en)       [Buy-Sell Life Insurance](https://www.woolleyins.com/buy-sell-life-insurance?hsLang=en)       [SBA Loan Life Insurance](https://www.woolleyins.com/sba-loan-life-insurance?hsLang=en)       [Key Person Life Insurance](https://www.woolleyins.com/key-person-life-insurance?hsLang=en) [Sell My Life Insurance Policy](https://www.woolleyins.com/sell-my-policy?hsLang=en) [Retirement Income & Annuities](https://www.woolleyins.com/retirement-income-and-annuities?hsLang=en) [Disability Solutions](https://www.woolleyins.com/disability-solutions?hsLang=en) [Contact](https://www.woolleyins.com/contact?hsLang=en) [About](https://www.woolleyins.com/about?hsLang=en) **Resources** [Blog](https://www.woolleyins.com/woolley-woolley-insurance-group?hsLang=en) All rates, quotes, and figures provided are estimates only, and are subject to final underwriting approval by the insurance carrier.  Products are not available in all states and are subject to change without notice.  By providing your information you consent to calls, texts, emails, and home visits from a licensed life insurance agent for the sole purpose of assisting you with your request(s).  You may opt out of this consent by emailing us at: clientcare@woolleyins.com. 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