Indexed universal life (IUL) is permanent life insurance whose cash value can earn interest linked to a stock market index, without being directly invested in the market.
How it works
Like other universal life policies, IUL has flexible premiums and a death benefit, generally paid income-tax-free to your beneficiaries. The difference is how cash value grows. Each year, interest is credited based partly on the performance of an index, such as the S&P 500, subject to limits:
- A floor, often 0%, so a negative index year doesn’t reduce your cash value through index losses.
- A cap or participation rate that limits how much of the index gain you receive.
Hypothetical example: say a policy has a 0% floor and a 10% cap. If the index rises 15%, the policy credits 10%. If the index falls 12%, the policy credits 0%. Your cash value doesn’t lose money from the index drop, though policy charges are still deducted.
A real-world example: Allianz Life Pro+ Advantage
Allianz Life’s flagship IUL, the Allianz Life Pro+ Advantage Fixed Index Universal Life policy, shows how modern IULs work:
- Multiple index allocation options, including indexes offered only by Allianz, such as the Bloomberg US Dynamic Balance Index II and the volatility-controlled PIMCO Tactical Balanced Index, plus a fixed interest option.
- Index Lock, which Allianz describes as a first-of-its-kind feature that lets policyholders lock in an index credit during the crediting period.
- Bonus options, including allocations that offer the opportunity for a guaranteed interest bonus, in some cases paired with an annual asset charge.
- Living benefits, including chronic illness and terminal illness accelerated death benefit riders.
Who it may suit
- People who want lifelong coverage plus cash value growth potential
- Those who want downside protection from index losses
- Higher earners looking for additional tax-advantaged strategies
What to watch for
- Caps, participation rates and charges can change, which affects growth.
- IULs are complex, with fees, surrender charges and cost of insurance that rises with age.
- Illustrations are hypothetical, not guarantees. Underfunded policies can lapse.
Curious whether an IUL makes sense for you? Get your Wealth Report Card.
Product information is from Allianz Life announcements reported by InsuranceNewsNet and Insurance Advocate, and is current as of their publication; features, bonuses, rates and availability change. Allianz Life Pro+ Advantage is issued by Allianz Life Insurance Company of North America and is not available in New York. Rates in the example are hypothetical. IUL policies do not directly participate in any stock or equity investments. Guarantees are based on the claims-paying ability of the issuing insurance company. Policy loans and withdrawals reduce cash value and death benefit. For educational purposes only.