Cash Value
One of the key features of an IUL is the opportunity to build cash value over time.
Indexed Universal Life insurance combines permanent life insurance protection with the opportunity to build cash value linked to the performance of a market index, such as the S&P 500®.
With an IUL, you can participate in potential market gains while your policy's index-linked interest crediting strategy can provide a 0% floor against negative index performance—creating an opportunity for growth without directly investing your policy's cash value in the stock market.
How Your Cash Value Grows
IUL cash value can earn interest based on the performance of a selected market index, subject to the policy's specific crediting strategy, participation rate, and cap.
You benefit from potential positive index performance without directly investing the policy's cash value in the market.
Downside Protection
With a 0% floor, if the selected index has a negative return during the crediting period, the index-linked interest credited may be 0% rather than a negative return.
However, a 0% floor does not guarantee that your policy's cash value will never decline. Insurance costs, policy charges, loans, withdrawals, and other factors can reduce cash value.
Tax-Deferred Growth
Your cash value can grow on a tax-deferred basis. Generally, you don't pay current income taxes each year on credited interest, allowing the cash value the potential to compound over time inside the policy.
How Point-to-Point Indexing Works
One common IUL crediting strategy compares the value of a selected market index at the beginning and end of a crediting period.
Key Components
- Cap Rate — The maximum interest that can be credited under the selected strategy.
- Participation Rate — The percentage of the index gain used to calculate the credited interest.
- Floor — The minimum credited interest under the selected strategy. Many strategies use a 0% floor.
Example
10% Cap | 100% Participation Rate | 0% Floor
Accessing Your Cash Value Through IUL Loans
You don't have to surrender your policy to access your cash value. An IUL policy loan allows you to borrow against your accumulated cash value while your policy remains in force, using the cash value as collateral rather than withdrawing it directly.
For example, if your policy has $300,000 in cash value, you might borrow $50,000 for retirement income, a business opportunity, education, an emergency, or another financial need, subject to the policy's loan provisions.
When properly structured and maintained, policy loan proceeds are generally not treated as taxable income. However, policy loans are not free withdrawals—interest accrues on outstanding balances, and loans and withdrawals reduce cash value and the death benefit.
Why Consider an IUL Loan?
- Access Cash Value — Access accumulated policy value without surrendering the policy.
- Potential Tax Advantages — Properly structured policy loans may provide access to funds without current income taxation.
- Flexible Use — Funds may be used for retirement income, emergencies, education, business opportunities, major purchases, or other needs.
- No Traditional Bank Application — A policy loan generally does not require the same application and credit approval process as a traditional bank loan.
- Maintain Coverage — Your life insurance protection can remain in place while the policy is properly maintained.
How IUL Loans Work
Unlike a traditional bank loan, IUL policy loans generally do not require scheduled repayment. However, interest continues to accrue on the outstanding loan balance.
You may repay the loan according to the policy's provisions, allow the balance to remain outstanding, or incorporate the loan into a broader financial strategy.
A commonly used concept is:
Build Cash Value → Access Cash Value Through Policy Loans → Maintain Policy Protection → Leave Remaining Death Benefit to Beneficiaries
However, proper loan management is extremely important. Outstanding loan balances and accrued interest reduce cash value and the death benefit and can cause a policy to lapse if the policy is not adequately funded and managed.
A policy lapse or surrender with an outstanding loan may result in significant tax consequences.
Why Consider an IUL for Cash Value Growth?
An appropriately designed and funded IUL may provide:
- Permanent life insurance protection
- S&P 500®-linked growth potential
- 0% floor on eligible indexed crediting strategies
- Tax-deferred cash value accumulation
- Potentially tax-advantaged access through policy loans
- Flexible premium funding
- Level or increasing death benefit options
- Living benefits and optional riders
- Long-term financial flexibility
- Potential for supplemental retirement income
- Death benefit protection for your beneficiaries
Build an IUL Around Your Financial Goals
An IUL can be more than a life insurance policy. When properly designed, funded, and managed, it can combine permanent protection, cash value accumulation, market-linked growth potential, financial flexibility, and living benefits in one long-term strategy.
Whether your priority is protecting your family, building cash value, creating supplemental retirement income, accessing financial resources during qualifying health events, or establishing a financial legacy, an IUL can be customized to fit your individual objectives.
The right policy design depends on your age, financial goals, desired death benefit, premium strategy, risk considerations, and long-term objectives.
