When it comes to financial planning, few products inspire as much curiosity—and confusion—as indexed universal life insurance, or IUL. It sounds like a hybrid, and that’s exactly what it is: a flexible life insurance policy that also offers the potential for cash value growth based on a stock market index, usually the S&P 500.
But with so many options out there, how do you find the best indexed universal life insurance policy? As financial professionals, not insurance salespeople, we aim to cut through the marketing fluff and give you a straightforward, helpful guide so you can make informed decisions.
What Is Indexed Universal Life Insurance, Really?
Let’s start with the basics. Indexed universal life insurance is a form of permanent life insurance. It includes a death benefit, like traditional life insurance, but also a cash value component that can grow over time.
What sets it apart is that the cash value is tied to the performance of a stock market index. This doesn’t mean you’re actually investing in the stock market—instead, your cash value earns interest based on how the index performs, with floors and caps to protect your downside and limit your upside.
For example, if your IUL policy has a 0% floor and a 10% cap, and the index gains 12%, you earn 10%. If the market drops 8%, you earn 0%. It’s a “no loss, limited gain” structure that appeals to people looking for conservative growth with a safety net.
Why Consider Indexed Universal Life?
So, why are people flocking to indexed universal life insurance policies? A few reasons stand out:
- Tax-advantaged growth: Earnings within the policy grow tax-deferred.
- Flexibility: You can adjust premiums and death benefits (within limits).
- Access to cash value: You can borrow against your policy, often tax-free.
- Market-linked growth potential: You may earn more than you would in a traditional whole life policy.
That said, IUL isn’t for everyone. It works best for individuals who can fund the policy properly and are looking for long-term solutions—not short-term gains.
How to Identify the Best Indexed Universal Life Insurance Policy
Let’s get to the heart of the matter. What makes one IUL policy better than another? Here’s what we suggest looking for:
1. Strong Carrier Ratings
Start by researching insurance companies with high ratings from agencies like A.M. Best, Moody’s, or S&P. You want a financially stable company that will be around decades from now to pay out your death benefit.
2. Competitive Cap Rates
Cap rates determine your maximum possible return. The higher the cap, the more growth potential you have in a good market year. Look for policies with cap rates above 9%, ideally in the 10–12% range.
3. Low or Transparent Fees
Every policy has fees—administrative costs, cost of insurance, and riders. The best IUL policies disclose these clearly and minimize the drag on your cash value growth.
4. Flexible Loan Options
You’ll want flexibility when accessing your cash value. Some carriers offer participating (or “wash”) loans that allow you to borrow without interrupting the index growth on your loaned funds.
5. Indexed Strategies
A good policy should offer multiple indexing strategies—like annual point-to-point, monthly average, or volatility-controlled options—so you can adjust your approach over time.
6. Built-in or Optional Riders
Some policies come with valuable extras, such as living benefits for chronic illness, long-term care acceleration, or overloan protection riders. These can add real value if structured properly.
Some Carriers to Watch
While we don’t sell insurance, we do stay on top of the market. Based on current research and industry performance, some carriers consistently stand out in the IUL space:
- Pacific Life – Known for strong cap rates, diverse indexing strategies, and flexible design.
- Nationwide – Offers good customization and solid living benefits.
- Lincoln Financial – Competitive product with strong historical returns and options for wealth transfer.
- Minnesota Life (Securian) – Offers unique loan features and low internal costs.
- North American Company – Highly rated, with impressive caps and transparent pricing.
Just remember: the “best” option depends on your goals. Someone prioritizing retirement income might choose differently than someone focused on wealth transfer or legacy planning.
Is IUL Right for You?
Before diving into any IUL policy, ask yourself:
- Can I comfortably fund the policy for 10+ years?
- Do I need life insurance coverage?
- Am I looking for conservative, tax-advantaged growth?
- Do I understand the trade-offs (like caps, fees, and surrender charges)?
Indexed universal life insurance can be a powerful financial tool—but only when used correctly. If you’re underfunding it or expecting guaranteed market-like returns, you may be disappointed.
Final Thoughts
The best indexed universal life insurance policy is the one that fits your goals, timeline, and risk tolerance. It’s not about the highest cap rate or the flashiest rider. It’s about smart design, long-term planning, and choosing a reliable carrier that will be there when it matters most.
As financial professionals, we encourage you to treat IUL like a long-term asset—not a quick fix. Work with someone who can model the policy thoroughly, stress-test it under different market conditions, and walk you through the “what ifs.” That’s how you turn a good IUL into a great one.