Indexed Universal Life is a UL variant where cash value growth is tied to a market index (typically S&P 500) - but with a floor (often 0%) so you never lose value in a down market. The trade-off is a cap or participation rate on the upside.
Typical cost
$400-$900 / month for $500K at age 40. Cost varies by funding pattern.
Best for
- Buyers who want market-linked growth without market-loss risk
- Long-time-horizon estate or supplemental retirement strategies
- Buyers comfortable with annual policy reviews
How it works
- 01
You pay flexible premiums.
- 02
Cash value 'crediting' is tied to an index - usually with a cap (e.g., 10%) and a floor (e.g., 0%).
- 03
Up years grow your cash value (subject to cap); down years preserve principal.
- 04
Death benefit is paid tax-exempt; cash value can be accessed via loans.
Pros
- • Market-linked upside without direct market-loss risk
- • Tax-deferred cash value growth
- • Income-tax-exempt loans against cash value when structured properly
Cons
- • Caps and participation rates can be reduced by the carrier
- • Complex - illustration assumptions vary widely between carriers
- • Not a substitute for diversified retirement investing