Permanent coverage whose cash value is credited off a market index — a 0% floor so a bad year is not a loss year, a cap on how much of a good one you keep, and charges that come out either way.
You are not in the market. You are credited off it.
Your premium buys insurance and funds an account inside the policy. The carrier credits that account based on the movement of an index, subject to a cap, a participation rate or a spread. Your premiums are not invested in any stocks or bonds; you receive no dividends. The index is a measuring stick, not a holding.
In exchange, the floor is 0%: a negative index year credits nothing rather than taking a loss. Cost-of-insurance charges still come out in that year, and they rise with age — which is why an underfunded IUL is the one that collapses, and why the design matters more than the carrier.
The moving parts
CapMax index credit
ParticipationShare of the move
SpreadDeducted from credit
Floor0% · guaranteed
Cost of insuranceRises with age
Funding levelYour lever
7-pay testThe MEC line
Illustration ruleAG 49-B · May 2023
Mechanics · 01 — 04
§ 02How it runs
How I design one
Since May 2023, regulators have tightened what an IUL illustration may show (AG 49-B). That changed the paper, not the policy — so I build to the guaranteed column and let upside be upside.
01
Fund it properly
Maximum premium against the minimum death benefit the tax code allows, so charges take the smallest possible bite of every dollar.
02
Stay under the MEC line
Fund to the edge of the seven-pay test, not past it, so loans and withdrawals keep their tax treatment (26 U.S.C. §7702A).
03
Illustrate at two rates
A conservative rate and the guaranteed minimum, side by side. If it only works at the maximum illustrated rate, it does not work.
04
Review it in force
Carriers can lower caps. An in-force ledger every year tells us early whether the funding plan needs to change.
Fit · and the trade
§ 03Judgment
This fits you if
You need permanent death benefit and want the cash value doing something while you hold it.
You are already using the tax-advantaged accounts available to you.
Your income varies, and a flexible premium matters more than a fixed one.
You will fund it consistently for a decade or more — not for two years.
What you have to weigh
Caps, participation rates and charges are non-guaranteed; the carrier can move them.
Cost of insurance climbs with age and strains a policy that was never funded well.
Surrender charges make the early years expensive to exit.
If you want contractual certainty over upside, whole life is the more honest answer — and I will say so.
Data · sourced
§ 04Reference
0%floor on index credits in a down year — charges still apply.North American · IUL brochure
+17%growth in U.S. indexed UL premium in 2025 — a record $4.5B.LIMRA · 2025 sales
2023May 1 — AG 49-B took effect on IUL illustrations.Society of Actuaries · NAIC
7policy years the IRS watches for over-funding.26 U.S.C. §7702A
A private conversation · no fee · twenty minutes
See it at the guaranteed rate first.
Send me your age, health picture and what you can fund each year. You will get the conservative illustration and the guaranteed one in the same email.