Compare Indexed Universal Life Insurance Rates
Helpful Tip: This page provides a comprehensive educational breakdown of index-linked permanent policies. If you are instead looking to run customized illustrations or generate real-time pricing from top carriers, access our master calculator to get universal life insurance quotes.
Use our free quote tool to compare Indexed Universal Life Insurance (IUL) policies from the top-rated life insurance companies in the U.S. Input your age, health, state, and coverage amount to instantly view customized rates. You can also compare IULs side-by-side with term life, whole life, and guaranteed universal life (GUL) policies to see what fits your financial goals.
Tip: Rates for IULs depend on more than just your age. Your desired death benefit, funding strategy, and how aggressively you plan to build cash value will impact your cost.
Understanding Indexed Universal Life Insurance
What is Indexed Universal Life Insurance?
Indexed Universal Life (IUL) insurance is a unique type of permanent life insurance that offers both death benefit protection and a cash value component. The cash value grows based on a specific market index, such as the S&P 500. Unlike traditional investments, your cash value in an IUL is not directly invested in the stock market but instead grows based on the index’s performance with certain protections in place.
IUL is sometimes referred to as equity-indexed universal life insurance.
Why It Matters for First-Time Buyers
- Unlike investing directly in the stock market, you can’t lose value in a down market with an IUL.
- Your interest credits are based on index performance, but you’re never directly invested in the index.
- The interest rate is subject to caps (maximum earnings) and floors (minimum guaranteed interest), typically ranging from 0% to 1%.
How Premiums and Cash Value Work
Your IUL premium is split into two main parts:
- Cost of Insurance (COI): Covers the life insurance protection.
- Cash Value Account: Builds savings that grow based on index performance.
You have flexibility in how much and how often you pay (within IRS guidelines). Overfunding—contributing more than the minimum—can dramatically grow your cash value and future income potential.
Example: You can pay higher premiums early on to build up your cash value faster, which gives you more access to tax-free retirement income later.
Cost Factors
The cost of an IUL policy is influenced by several factors, including your age, health, gender, and the amount of coverage you desire. Generally, healthier individuals and younger policyholders enjoy lower premiums. For instance, a healthy individual might pay between $250 and $500 per month for a typical IUL policy, depending on their specific circumstances and coverage needs.
Pros and Cons
Pros:
- Growth Potential: IUL offers higher growth potential due to its index-linked cash value.
- Downside Protection: The minimum interest rate protects your cash value from market losses.
- Tax Advantages: The growth in your cash value is tax-deferred, and you can take tax-free loans against your policy.
- Flexibility: You can adjust your premiums and death benefits as your needs change.
Cons:
- Complexity: IUL policies are more complex than other types of life insurance.
- Higher Costs: They generally come with higher management and insurance fees.
- Caps on Returns: There are limits on the maximum returns you can earn.
- Market Risk: While protected, the performance of your cash value is tied to market indexes.
IUL Interest Rates & Growth Potential
IULs earn interest based on stock index performance, with caps and floors protecting against losses.
- Typical Cap Rate: 8-12%
- Floor Rate: 0-1%
- Participation Rate: 50-100% of index gains
When Can You Withdraw from an IUL?
Once your policy accumulates enough cash value, you can:
- Withdraw tax-free up to your cost basis (your total premium payments).
- Take loans against the cash value—also tax-free if the policy stays in force.
Things to Know
- Withdrawals reduce your death benefit.
- Loans must be repaid or properly managed to prevent policy lapse or taxation.
IUL for Investing and Retirement Income
Indexed Universal Life (IUL) insurance is a permanent life insurance policy that includes a cash value component tied to a stock market index, like the S&P 500. Your money isn’t directly invested in the market but earns interest based on index performance, subject to caps and floors. It’s tax-deferred, offers death benefits, and allows tax-free loans or withdrawals. However, returns are limited, fees can be high, and poor performance compared to aggressive policy illustrations can impact your policy’s long-term sustainability.
Scenario:
A 35-year-old earns $150K and maxes out their 401(k) and Roth IRA. They want more tax-advantaged growth and permanent life insurance. They open an IUL, contributing $12,000 yearly. Over time, the cash value grows based on S&P 500 performance, capped at 10% with a 0% floor to prevent losses. By age 65, they have built over $500K in tax-deferred cash value. In retirement, they borrow $40K annually tax-free through policy loans, preserving their Social Security and avoiding capital gains taxes.
Disclaimer: Loans from a non-MEC life insurance policy generally are not included in income while the policy remains in force, but interest accrues and the loans reduce cash value and the death benefit. A lapse or surrender with gain and an outstanding loan can create taxable income, and MEC loans are treated differently. IRS Internal Revenue Bulletin 2001-36 — MEC distribution and loan rules
Using an IUL for Retirement
IUL policies can supplement retirement with tax-free income through policy loans.
Why It’s Effective:
- Guaranteed death benefit
- No required minimum distributions (RMDs)
- Protection against stock market losses
Using IUL for Investing
While IUL policies provide market-based returns, they should not be viewed as pure investments due to fees and insurance costs. However, they are useful for:
- Tax-free legacy planning
- Wealth protection from market downturns
- Supplemental retirement income
An IUL works best when structured correctly for cash accumulation.
IUL vs. Whole Life Insurance
| Feature | IUL | Whole Life |
|---|---|---|
| Cash Value Growth | Index-linked | Fixed interest |
| Premiums | Flexible | Fixed |
| Death Benefit | Adjustable | Guaranteed |
| Costs | Moderate to high | High |
IUL offers more flexibility, while whole life guarantees fixed growth.
Is an IUL Right for You?
Best For:
✔ Individuals with high income
✔ Long-term wealth builders
✔ Those seeking tax-free retirement income
Not Ideal For:
✘ People needing low-cost term life insurance
✘ Those looking for short-term investments
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Questions From Our Readers
What is the best-indexed universal life insurance?
North American and Nationwide are the best-indexed universal life insurance plans. Due to low premiums and A+ financial ratings from A.M. Best, these companies are considered some of the finest indexed universal life insurance policies.
What is the IUL cash reserve?
IUL cash reserve is a feature of indexed universal life insurance. It’s a savings component that allows policyholders to accumulate cash value over time. The cash reserve is typically invested in indexed accounts and is accessible to the policyholder through withdrawals or loans.
Are IUL withdrawals taxable?
Withdrawals from an Indexed Universal Life (IUL) policy are typically not taxable if they do not exceed the amount of premiums paid. However, loans taken against the policy are also tax-free, provided the policy remains in force.
Should I buy an IUL if I’m nearing retirement?
Buying an Indexed Universal Life (IUL) insurance policy near retirement could be beneficial if you plan to utilize tax-free loans after allowing the cash value to grow for at least 10 years. This strategy allows the policy to accumulate cash value and potentially provide tax advantages during retirement.
I am 63. Can I use an IUL as an investment tool?
An IUL can be used as an investment tool at any age. The IUL policy earns interest based on the performance of a market index. However, you are NOT directly in the markets, so you lose nothing when the markets drop and earn a portion of the upside returns. The insurance company uses the market index performance as a measuring stick to determine the amount of interest you receive.
Does the cost of IUL increase?
Indexed Universal Life (IUL) insurance policies have a unique structure where the premium remains constant, but the internal cost of insurance can increase with age. The premium you pay for an IUL policy is fixed and does not change throughout the life of the policy. Despite a constant premium, the actual cost of insurance within the policy tends to increase as you age. This is because the risk of death increases with age, and insurance companies adjust the costs accordingly. This means a larger portion of your premium is used for insurance costs, and less goes towards building cash value.
Can you borrow money from an IUL?
Yes, you can borrow money from an IUL policy. This is one of the key features that attracts individuals to purchase IULs.
Can I use IUL for Infinite Banking?
Yes, you can use an Indexed Universal Life (IUL) policy for Infinite Banking. The cash value component of an IUL allows for tax-free loans and flexible withdrawals, making it suitable for creating a personal banking system. However, proper setup and management are crucial for maximizing benefits.
How long do I need to contribute to an IUL for retirement income?
The duration of contributions to an Indexed Universal Life (IUL) policy for retirement income varies based on individual goals, the desired retirement age, and the policy’s performance. Typically, contributions span 10-20 years to accumulate sufficient cash value for sustainable retirement income. Regular reviews with your financial advisor can help tailor the plan to your needs.
Can I open an IUL for my child?
Yes, you can open an Indexed Universal Life (IUL) policy for your child. This strategy can provide lifelong coverage and build cash value that grows over time, which the child can use in the future for education, a down payment on a home, or other needs. Starting early maximizes the benefits of compound interest and lower insurance costs.
When can you withdraw from an IUL?
You can withdraw from an Indexed Universal Life (IUL) policy typically after the policy has built sufficient cash value, which usually takes several years. Withdrawals can be made tax-free up to the amount of premiums paid. It’s best to consult with your insurance provider for specific terms and conditions.
Can you withdraw money from an IUL?
Yes, you can withdraw money from an Indexed Universal Life (IUL) policy. Withdrawals are generally allowed once the policy has built up enough cash value, which usually takes a few years. These withdrawals can be tax-free up to the amount of premiums paid. It’s important to review your policy’s terms and consult with your provider to understand specific conditions and any potential impacts on the death benefit.
Can you roll a Roth IRA into an IUL?
No, you cannot roll a Roth IRA directly into an Indexed Universal Life (IUL) insurance policy. You can withdraw funds from your Roth IRA and use them to purchase an IUL, but this may have tax implications if you haven’t met the IRS guidelines for tax-free status.
Where can I open an IUL account?
An independent life insurance agency is the best place to open an IUL account. The Annuity Expert has the largest selection of indexed universal life insurance in the United States.
Is an IUL better than a Roth IRA?
IUL: Offers life insurance, tax-free withdrawals, and no contribution limits.
Roth IRA: Tax-free growth, but has income and contribution limits.
For high earners, an IUL can be a better retirement savings tool due to no income restrictions.
How long should I fund an IUL?
At least 10–20 years. The longer and more consistently you fund it, the more cash value you’ll accumulate.
What happens if I stop paying premiums
If the cash value is sufficient, it will cover the cost of insurance. If not, the policy may lapse, losing both your coverage and tax advantages.
What are the downsides of IUL?
Downsides include high policy fees, lower growth potential due to caps, risk of policy lapse if underfunded, and complexity that many buyers don’t fully understand. Compared to traditional investments, an IUL is less transparent and may deliver disappointing returns if not structured properly.
Is IUL better than whole life?
IUL usually offers more flexible premiums and higher potential returns since cash value growth is tied to an index. Whole life provides guaranteed fixed growth and stable premiums. Whole life works better for those who want certainty, while IUL appeals to those willing to accept variable growth for flexibility.
Do you lose in an IUL if the stock market crashes?
No, you don’t lose principal because IULs include a 0% floor, meaning your account won’t drop due to negative index performance. However, you also won’t earn anything that year, and policy costs still apply, which can eat into your cash value.
Which life insurance does Dave Ramsey recommend?
Dave Ramsey recommends term life insurance only because it’s cheaper and simpler. He does not recommend IUL or whole life, believing permanent policies are too expensive for the coverage you get.
How much money do I need to open an IUL?
Most carriers require at least $100–$200 per month to start, but properly funding an IUL usually takes several thousand dollars a year. Underfunding can cause the policy to lapse, so it’s best suited for people with disposable income.
How much does an IUL cost per month?
Premiums can start as low as $100–$200 per month, but most well-structured IULs require higher funding to avoid lapse. Costs vary by age, health, and policy design.
Is IUL better than mutual funds?
Mutual funds generally offer higher long-term returns and more liquidity, but no life insurance or tax-free loan features. IULs are better for those who want permanent insurance with a side account that grows tax-deferred.
What is better, an IUL or an annuity?
An IUL provides life insurance and potential tax-free income, while an annuity provides contractually guaranteed lifetime income. If your goal is retirement income security, annuities are usually better. If your goal is tax-free legacy planning with insurance, IUL may fit.
Who is a good candidate for an IUL?
Good candidates are high earners, people needing permanent life insurance, and those seeking tax diversification in retirement. Someone with limited disposable income is not a good fit.
What happens to cash value in IUL at death?
The insurer keeps the cash value, and your beneficiaries receive the death benefit only. To maximize payout, you can choose an increasing death benefit option so they receive both.