Indexed universal life insurance is a type of permanent life insurance, meaning that it has a cash value component in addition to the death benefit. Money in your current value account may earn interest based on a stock market index selected by your insurers, such as the S&P 500 or the Nasdaq Composite. The funds do not earn a fixed interest rate, but are usually provided with an interest guarantee.


No fixed rate: When you buy indexed universal life insurance, the funds in your indexed present value account will not benefit from a fixed rate, explains the National Association of Insurance Commissioners (NAIC). Instead, your interest rate is based on a market rate chosen by your insurer. (This differs from universal life insurance, which, according to the Insurance Information Institute (III), generates interest rates similar to those on a money market account.) According to the Securities and Exchange Commission, an index tracks the performance of a particular basket of assets, such as stocks or bonds. Your insurer chooses the index, then calculates an interest rate based on the performance of the index, the NAIC says. The life insurance company then credits this interest to your present value account.

Interest Rate Guarantee: The NAIC also states that policies typically include an interest rate guarantee so that a minimum interest rate is paid even if the index generates lower returns. However, interest rates are often also subject to a “cap” or cap.

According to the American Institute of Certified Public Accountants (AICPA), there are several other characteristics of indexed universal life insurance:

Adjustable premium payments (within certain limits): 1 Your policy may contain a premium planned for you. However, if you have enough cash in your cash account, you may be able to use those funds to pay for your rewards.

Adjustable death benefit: 1 The death benefit is generally flexible with an indexed universal life insurance policy and can usually be reduced at any time. To increase the death benefit, you may need to have a medical exam.

Access to cash value: 2 In an emergency, you may be able to borrow from your indexed universal life insurance, although you will likely be charged interest. You can also make withdrawals from your cash account. However, this can reduce your death benefit permanently. If you don’t have a sufficient balance in your cash-value account, withdrawals can also cause your policy to expire.


The III suggests that permanent life insurance can be a good option if you want life insurance and want to build your long-term money bank.

The NAIC points out that indexed universal life insurance offers both the potential for market-based growth and protection against depreciation in the event of a market downturn. If you like these features, you may want to consider indexed universal life insurance. An insurance agent can help you make an informed decision if indexed universal life insurance is right for you.