Life Insurance
Indexed Universal Life (IUL)
Indexed universal life insurance credits interest based on the performance of a market index such as the S&P 500, subject to a cap and a floor—typically 0%—so cash value cannot lose value due to index declines.
Last reviewed: May 2026 · Editorial methodology
Definition
Indexed universal life (IUL) insurance is a form of permanent coverage that tracks an external index—most commonly the S&P 500—to determine the interest credited to the policy's cash value each segment period, usually one year. A participation rate (e.g., 100%) determines what share of index gains are credited, while a cap rate (often 8–12%) limits the maximum credit, and a floor (typically 0%) ensures the policy never credits negative interest even when the index falls. For example, if the S&P 500 gains 18% in a segment but the cap is 10%, the policy credits 10%; if the index falls 20%, the policy credits 0%. A 45-year-old purchasing a $750,000 IUL might pay $800 per month for 15 years, building cash value intended to supplement retirement income tax-free through policy loans. Insurers can change caps and participation rates after issue—subject to contractual minimums—which can significantly alter long-term performance versus illustration projections. IUL policies have attracted regulatory scrutiny for overly optimistic illustrations; buyers should stress-test projections at 4–5% credited rates before purchasing.
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Cover Forge USA Editorial Team
Editorial Lead
This article was researched and written by the Cover Forge USA editorial team against federal sources (NAIC, CMS, FEMA, DOL, SSA, state DOIs) and standard policy forms. Bylines organize content by topic — they do not assert individual licensure. See our editorial-policy for details.
Reviewed 2026-06-14
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