Let me ask you something: If your IUL policy were a car, would you know how many miles are on it?
Most people who own an Indexed Universal Life policy know they have one. They’ve been paying premiums consistently, they trust the coverage is in place, and they move on with their lives. That’s perfectly reasonable – IUL is designed to run in the background.
But unlike a car, your IUL policy has moving parts that shift over time. And just like a car, it benefits from a periodic look under the hood. Not because something is necessarily wrong – but because knowing is always better than guessing when it comes to your family’s protection.
This guide is for IUL policyholders who want to understand how their policy actually works – in plain language – and know what to look at to make sure it’s performing as intended.
How an IUL Policy Actually Works: The Short Version
IUL can feel complex because there are several moving pieces. Let’s break each one down simply.
Your premium has two jobs.
When you pay your IUL premium, it doesn’t all go into a savings bucket. Part of it covers your cost of insurance – the actual cost of the death benefit protection. The rest goes into your policy’s cash value account, where it has the potential to grow over time.
Your cash value earns interest based on a market index.
IUL policies don’t invest your money directly in the stock market. Instead, the insurance company uses your cash value to credit interest based on how an index – most commonly the S&P 500 – performs. According to Guardian, the index “just provides a reference for how much interest the insurance credits to your account.”[1] Your actual money stays in the insurance company’s general account.
There’s a floor and a cap.
The floor is the minimum interest your cash value can earn in any given period – typically 0%. That means even if the index drops significantly, your cash value won’t decrease due to market performance. The cap is the maximum you can earn, typically in the range of 8–12%, even in a strong market year.[1] Think of it as a hallway: you can’t fall below the floor, but you can’t jump above the ceiling either.
Your insurance costs increase over time.
This is the part that surprises some policyholders. The cost of insurance inside an IUL – the charge for providing the death benefit – increases as you age, because the statistical risk of a claim increases with age. NerdWallet notes this plainly: “the actual cost of insurance within the policy tends to increase as you age.”[2] These costs are deducted from your cash value each month. The cash value needs to be growing sufficiently to keep pace with those rising deductions over time.
Premiums are flexible – but flexibility has limits.
One of IUL’s design features is that you can adjust how much you pay within certain limits set by the policy. This can be helpful if your income changes. The important thing to understand is that paying less in a given period reduces the cash value going into the policy, which affects long-term performance.[2] Flexibility is a feature – but it works best when the policy is funded thoughtfully over time.
Illustrations are projections, not promises.
When you bought your IUL, you likely saw an illustration showing projected cash value and death benefit growth over time. The NAIC implemented Actuarial Guideline 49-B specifically to ensure these projections are based on realistic assumptions – capping illustrated returns at a level regulators consider reasonable.[3] But illustrated rates are still projections, not guarantees. Actual credited rates depend on market performance, the carrier’s cap rate decisions, and interest rate environments, all of which can vary from what was illustrated.
What Is an In-Force Illustration – and Why Does It Matter?
An in-force illustration is your policy’s current report card. It shows how your policy is actually performing right now, projects forward based on current conditions, and compares that picture to where you were originally expected to be.
Think of it like your mortgage statement. You could just send in payments every month without looking at the balance – or you could open the statement, see exactly where you stand, and make informed decisions. An in-force illustration does the same thing for your IUL.
Here’s something every IUL policyholder should know: you can request an in-force illustration from your carrier for free, once per year. The Wisconsin Office of the Commissioner of Insurance states it plainly: policyholders “can request, free of charge, an updated in-force illustration once a year” and should use it to “ask your insurer or agent every year what premium level, based on current conditions, would allow your coverage to continue to your desired date.”[4] That’s not a recommendation from a salesperson – it’s a consumer protection standard from a state insurance regulator.
Four Things to Look at When You Get Your In-Force Illustration
- Current Cash Value vs. Original Projection
Pull out your original illustration and compare the cash value at your current policy year to what was projected. Some variance is normal – markets don’t move in straight lines. A meaningful gap after 10 or more years is worth a conversation with your advisor to understand the cause and the path forward.
- Your Current Cap Rate
The cap rate is the ceiling on how much interest your cash value can earn in a given period. Cap rates are not guaranteed – carriers can adjust them within limits defined in your contract. If your current cap rate is lower than the rate used in your original illustration, your growth potential has changed proportionally. Your in-force illustration will show current cap rate assumptions.
- The Premium to Keep Coverage in Force
Your in-force illustration will show what premium level is required – under current conditions – to keep your policy active through your desired coverage period. This is the single most important number in the document. If that number is meaningfully higher than what you’re currently paying, that’s the conversation to have now rather than later.
- Projected Values at Different Credited Rates
A thorough in-force illustration will show projections at both current and guaranteed rates. Looking at the guaranteed column – which assumes the most conservative scenario – shows you the floor of what the policy is designed to deliver if conditions are less favorable than projected. Understanding both scenarios helps you plan realistically.
If the Numbers Raise Questions
First: don’t panic. The purpose of reviewing your in-force illustration is to stay informed, not to find problems. Most people who review their illustration find their policy is performing as intended.
If you do see something that raises a question – a meaningful gap between projected and actual cash value, a premium notice suggesting additional funding, a lower cap rate than expected – the right move is a direct conversation with a knowledgeable advisor who can walk through the numbers with you.
Options for IUL policyholders depend entirely on individual circumstances: age, health, funding level, time horizon, and the specific policy design. There is no universal right answer – only the answer that fits your situation. That’s the conversation worth having.
For Those Still Evaluating Permanent Insurance
If you’re not yet a policyholder and are weighing permanent insurance options, IUL is a legitimate consideration for the right person. It tends to work best for those who want premium flexibility, are comfortable with a policy that requires periodic attention, and have a long enough time horizon for the structure to deliver on its potential.
For those who prefer fixed premiums, guaranteed growth, and a policy that runs without active monitoring, whole life insurance offers a structurally different approach. The right product depends entirely on how you live, plan, and what you want your insurance dollars to do for your family.
That’s not a decision to make based on an article. It’s a decision to make in a real conversation, with someone who can look at your complete picture.
Your Next Step
If you own an IUL policy, request your in-force illustration. It’s free, it’s your right as a policyholder, and it’s the single best tool for knowing whether your coverage is performing as intended.
If you’d like help reading it – translating the numbers into plain language and understanding what they mean for your family’s protection – reach out directly. That’s exactly the kind of conversation I’m here for.
Because the point of life insurance isn’t to own a policy. It’s to know your family is actually protected.
Raymond is a Financial Advisor and Executive VP of Operations at RISE Wealth Strategies, where purpose and wealth align. He helps individuals and families understand their insurance coverage and build strategies that give every dollar clear purpose.
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References
[1] Guardian Life Insurance Company of America, “What is Indexed Universal Life Insurance (IUL)?” last updated August 7, 2025, https://www.guardianlife.com/life-insurance/indexed-universal
[2] NerdWallet, “Indexed Universal Life Insurance (IUL): How It Works,” https://www.nerdwallet.com/insurance/life/learn/indexed-universal-life-insurance
[3] National Association of Insurance Commissioners (NAIC), Actuarial Guideline 49-B (AG 49-B), effective 2025, https://content.naic.org/sites/default/files/inline-files/committees_a_actuarial_rel_docs_ag049b-adopted.pdf
[4] Wisconsin Office of the Commissioner of Insurance, “Consumer Alert: Universal Life Insurance,” December 3, 2021, https://oci.wi.gov/Pages/Regulation/CA20211203UniversalLifeInsurance.aspx
The opinions expressed are those of the author and not necessarily those of Guardian or its subsidiaries. Past performance is not a guarantee of future results.
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