An Introduction to Indexed Universal Life (IUL) Insurance

Indexed Universal Life (IUL) is a pseudo-hybrid of regular (or fixed) universal life (UL) and variable universal life (VUL). Like regular UL, it is a flexible premium, current assumption, adjustable death benefit type of cash value permanent life insurance with a guaranteed minimum interest crediting rate. The amount of interest that the insurer credits to the cash accumulation account, though, is tied to a market index such as the S&P 500 or the Nasdaq 100. Most IUL policies allow policy­owners to allocate their cash value amounts between a fixed account and one or more index accounts. Thus, insurers have designed IUL to give policyowners the opportunity to participate in (some of) the gains when market indexes turn up with the added appeal of being protected from market downturns. Although the amount credited to the cash value account is based upon one or more market indexes, the cash value account is NOT directly invested in those indexes. This is why IUL is called a pseudo-hybrid in that it somewhat mimics, but does not actually duplicate, the cash value account methods of VUL policies.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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