What is the difference between universal life and indexed universal life?
Asked by: Turner Berge | Last update: January 4, 2026Score: 4.4/5 (27 votes)
Is indexed universal life the same as universal life insurance?
An IUL policy functions the same way as a traditional universal life policy, with the exception of how its cash value earns interest.
Is UL the same as IUL?
Indexed universal life (or IUL) is a variation of universal life for those who want premium flexibility with the potential for greater cash value growth that's tied to a market index, unlike regular UL, which can grow at a guaranteed crediting rate.
Which is better, whole life or indexed universal life?
Wealth Accumulation: If you want to maximize your cash value growth potential, IUL may be more appealing due to its higher return potential. Guaranteed Protection: Whole Life might be a better fit if you prioritize a guaranteed death benefit and stable cash value growth.
What are the downsides of indexed universal life?
- Con: Index Growth Options Are Capped or Diluted.
- Con: IUL Complexity Requires Ongoing Understanding.
- Con: No Guarantees Inside IUL's Rising Cost Structure.
- Con: Gains Are Taxed Instantly If Your IUL Policy Lapses.
Heated Debate Between Whole Life Agent and Dave Ramsey
Can you lose money on IUL?
You typically cannot lose money in an Indexed Universal Life (IUL) policy due to a 0% floor, which prevents cash value losses from market downturns. However, fees and policy costs can reduce cash value over time, especially if credited interest is low or nonexistent in certain years.
Why do rich people use IUL?
Indexed universal life (IUL) insurance offers several compelling advantages for estate planning: Large, Tax-Free Death Benefit: The money paid to your beneficiaries is generally tax-free, allowing for the efficient transfer of a greater portion of your wealth.
What does Suze Orman say about universal life insurance?
One of my key life insurance rules is this: Stick with term life insurance. Unless you have someone in your family with special needs, there is typically no need to buy whole life, or universal life, which are referred to as “permanent” policies and cost a lot more.
Who is the IUL best for?
An IUL insurance policy may be canceled if you stop paying premiums. IUL policies are generally best for those with large up-front investments who want options for a tax-free retirement.
What are 2 disadvantages of whole life insurance?
A more complex product than term life insurance. Higher premiums than term life insurance. Could be costly if coverage lapses early.
Why not to buy an IUL?
No Guaranteed Returns: While IUL policies offer the potential for higher returns compared to traditional fixed policies, they do not guarantee them. The actual returns you experience will depend on the market performance and the specific terms of your policy.
What is the 7 pay rule for IUL?
What Is the 7-Pay Rule for IUL? The 7-pay rule is a federal tax qualification test applied to life insurance policies, including Indexed Universal Life policies, to determine how much in policy premiums you can pay in policy premiums over its first seven years (or seven years after a material change).
Which is better, IUL or Roth IRA?
They also provide tax-free income in retirement. Therefore, investors concerned about their family's welfare after they're gone may prefer an IUL, while those who want a tax-free income stream during retirement can opt for a Roth IRA.
How much money do I need to open an IUL?
The minimum amount you need to start an IUL life insurance policy varies between insurers and depends on your chosen coverage amount and premium payment method. Annual payments for an internationally indexed universal life policy start at around US$20,000 yearly and rise to $100,000 or more in premiums.
What happens to cash value in IUL at death?
When you die, the insurance company will pay the death benefit. No matter how much cash value you may have had in the policy the moment before you died, your beneficiaries can collect no more than the stated death benefit.
Are IUL better than 401k?
IUL contracts protect against losses while offering some equity risk premium. IRAs and 401(k)s do not offer the same downside protection, though there is no cap on returns. IULs tend to have have complicated terms and higher fees.
What is the downside of IUL?
While IUL loans offer numerous benefits, they also have potential drawbacks that need careful consideration. A significant risk is the possibility of a policy lapse if the outstanding loan balance, along with unpaid interest, surpasses the cash value. This could result in the loss of your life insurance coverage.
Can you pull money from an IUL account?
Can you withdraw money from your IUL Account? You have the option to borrow against your cash value through a policy loan or withdraw cash value. Once you pass away, your beneficiaries do get a death benefit. However, this amount will be reduced by any loans not paid or withdrawals you took from the cash value.
What are the disadvantages of universal life insurance?
Universal policies typically don't have fixed interest rates, so they are less predictable than whole life insurance policies. If you miss a payment on a universal life policy or don't contribute enough to the cash value, you may end up making several large payments to keep the coverage.
What does Dave Ramsey say about term life insurance?
With the money saved on term insurance, you can attack debt and grow your assets to the point where you don't need life insurance at all. Dave recommends a policy amount of 10-12 times your annual income with a 15- to 20-year term, or up to 30 years for younger families.
When should you cash out a universal life policy?
It's often recommended to wait at least 10 to 15 years before cashing out a whole life insurance policy, allowing the cash value to grow. Before making a decision, consult with your insurance agent or a financial advisor to understand the full impact of cashing out.
Can I cancel my IUL policy?
An IUL policy may be canceled if you stop paying premiums. In general, these policies are best for those with a large up-front investment who are seeking options for a tax-free retirement.
How do you make money with an IUL?
An IUL's cash value component earns interest based on the performance of a market index, such as the S&P 500. Unlike direct investments, your cash value in an IUL is protected from market downturns due to the policy's built-in floor rate, often set at 0%, ensuring you won't lose money when the index performs poorly.