What is Indexed Universal Life?

Indexed universal life insurance is a type of permanent life insurance that earns interest based on the stock market’s returns. As a universal life policy, policyholders can change payments and benefits as needed.  IUL's offer death benefits, living benefits, as well as cash accumulation. The death benefit is determined at the beginning of the policy and can can be updated during the policy as the owners needs change. The cash account grows based on the performance of a stock index.

A stock index, such as the S&P 500, Global Market, or Dow Jones Industrial Average, is a way to track a group of stocks. Insurance companies pick one or more of these and pay interest to policyholders based on the index’s performance — as value goes up, the account earns interest. If the index drops, the account earns less or nothing.

The cash inside an IUL is protected by what is called a "floor". The floor is the lowest your account rate can go and is usually guaranteed for the life of the policy but is often set at 0% and some as high as 0.75%.