Indexed Universal Life (IUL) is one of the most misunderstood financial tools out there. On paper, it looks like a way to grow wealth tax-advantaged while still having life insurance protection. In reality, most IULs fail because they are not designed correctly.
Here’s the truth: IULs are not for everyone. They are only suitable for wealthy, accredited individuals who can put in a significant upfront amount and sustain payments for at least ten years. Without that commitment, the policy will likely collapse under its own weight.
The Hidden Problem: Rising Insurance Costs
Every year, as the insured person gets older, the cost of insurance (COI) inside an IUL goes up. If the policy isn’t built properly, those rising costs eventually eat away at the cash value, and the whole policy implodes.
That’s why a good IUL design focuses on:
- Overfunding upfront so more money goes toward growth instead of just paying for insurance.
- Minimizing the death benefit to reduce costs while still complying with IRS rules.
6 Principles of a Well-Designed IUL
- Max Out Funding, Minimize Insurance
Push as much premium into the policy as legally possible (up to IRS limits), while keeping the death benefit at the lowest allowable level. This makes the cash value the star of the show. - Commit for 10+ Years
If you cannot keep the policy alive for a decade, it’s not the right tool for you. IULs only make sense as a long-term play. - Pick the Right Carrier
Choose a company with strong ratings and consumer-friendly terms—good caps, fair participation rates, and low internal costs. - Smart Loan Strategy
Down the road, the power of IUL is tax-free access through policy loans. But loans need to be structured carefully—using participating or low-cost loan options—to avoid draining the account. - Stress-Test Everything
Do not trust the glossy projections at 7–8%. Run the numbers at 4–5% and see if the policy still holds. If it does, you’re on solid ground. - Work With a Designer, Not Just a Salesperson
The difference between a strong IUL and a failed one comes down to how it’s structured. A true professional designs it for sustainability, not for quick commissions.
Final Word
An IUL is either a wealth machine or a ticking time bomb—and the difference is in how it’s built. For the right client, designed the right way, it can provide lifelong protection, tax-free growth, and generational wealth. For the wrong client, it’s a guaranteed disappointment.
Rule #1: Always design for the long term, not for the illustration.