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Policy Types

Understanding indexed universal life insurance

Learn about the many benefits of indexed universal insurance and if this type of policy is right for you in this informative article from Protective Life.

Today, many people are looking at the value of permanent life insurance with its ability to provide long-term protection along with cash value. As such, indexed universal life (IUL) has become a popular choice in providing permanent life insurance protection, and an even greater potential for growth through indexing of interest credits.

How does IUL insurance work?

Like other types of permanent life insurance, the premium payments you make to your IUL policy have the potential to earn interest and grow the cash value of your policy. However, what makes IUL different is the way interest is credited to your policy. In addition to offering a traditional declared interest rate, IUL offers the opportunity to earn interest, subject to caps and floors, that is linked to the performance of a selected choice of market indices such as the S&P500, Dow Jones Industrial Average or the Nasdaq-100.

When the linked index performs well, your cash value builds at a faster rate. In contrast, if the index doesn't do well, your cash value will accumulate at a slower rate or not at all. The amounts credited to the cash value in your IUL grow tax-deferred, and may be used to pay insurance premiums, providing the flexibility to reduce or even stop making out-of-pocket premiums payments as long as the minimum premium payment is being met. This is because, over time, it’s also possible to borrow against the cash value of the policy. With IUL, the policyholder decides on the amount allocated among the indexed account and the fixed account.

Indexed universal life insurance advantages

Flexibility for greater growth potential

As with a regular universal life insurance policy (UL), IUL allows for a flexible premium. This means you can choose to contribute more to your policy (within federal tax law limits) in order to help you build up your cash value even faster. However, it's important to note that many IUL policies have policy rates, whereby your indexed crediting rate is limited. This means you'll have a limit on how much you can earn even if the index does extremely well.

A guaranteed credit

Most IUL policies come with a guarantee that you will not lose cash value due to index performance. So if the index goes down in a year, your cash value won't. It's important to note that the account value, any policy loans or surrenders may be subject to policy charges, surrender charges, transaction fees, and may reduce the cash value and death benefits of your policy.

Indexed universal life disadvantages

Fees and commissions

As insurance policies with investment-like features, IUL policies charge commissions and fees. These fees can reduce the cash value of the account. 

Earnings capped

While IUL policies also offer guaranteed minimum returns (which may be 0%), they also cap returns, even if your select index overperforms. This means that there is a limit to how much the cash value can grow.

Indexed universal life and retirement planning

An IUL policy can be a good way to provide your loved ones with the protection of a permanent life insurance policy along with the potential to grow and protect its cash value.

If you're interested in learning more about indexed universal life insurance, contact Protective for a quote. 

An indexed universal life insurance policy is not an investment in an index, not a security or stock market investment, and does not participate in any stock or equity investments. 

*As long as required premium payments are timely made.



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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective or its subsidiaries.

Learning Center articles may describe services and financial products not offered by Protective or its subsidiaries. Descriptions of financial products contained in Learning Center articles are not intended to represent those offered by Protective or its subsidiaries.

Neither Protective nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax-related decisions. For information about Protective and its products and services, visit

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