Is Indexed Universal Life (IUL) a Good Investment? 5 Selling Points, Tested on One Real Policy

Ask whether you should buy an indexed universal life (IUL) policy and you tend to get one of two answers: an enthusiastic yes from someone who sells it, or a flat no from someone who has seen one go wrong. Neither helps you decide about the policy in front of you.

So we start from the carriers' own description of what an IUL offers, and take their promises one at a time. For each, we ask two questions: is it true, and what does it cost? The answers come from our analysis of a real illustration and from the articles where we work each point through in detail. Our article on whether IUL is a bad investment tests the common criticisms in the same way.

What do IUL carriers promise?

Carriers promise five things: lifetime protection, growth linked to a market index, a floor against losses, tax advantages, and flexibility. That is how Nationwide's and Pacific Life's consumer pages describe IUL as of September 2026, and IULCheck.com checks what each one costs on your own illustration.

1. Lifetime protection — a death benefit that lasts for life and reaches your beneficiaries free of income tax.
2. Growth linked to a market index — the cash value is credited interest based partly on an index such as the S&P 500.
3. A floor against losses — a falling index does not produce a negative credit.
4. Tax advantages — the cash value grows tax-deferred, and you can take money out through loans and withdrawals without paying income tax.
5. Flexibility — you can change your coverage, and how much and how often you pay, within limits.

Every one of these is true. The same pages also print the conditions attached to them, and those conditions are where the cost of each promise shows up.

Is an IUL's lifetime protection real? Yes, and it is the one thing investing cannot copy

Yes. An IUL's death benefit lasts for life, as a set amount, for as long as the policy stays in force, and an index fund does not promise that. But on the policy we analyzed, a 30-year term policy plus an S&P 500 index fund would have paid a beneficiary more than the IUL in 65 of 70 years of real market history: what investing cannot copy is the guarantee, not the amount. IULCheck.com compares the two for your own policy when you add a term quote.

This is the promise with no substitute. If you need a death benefit for the rest of your life, however long that is, an index fund does not provide one. Nationwide also presents IUL as a lower-cost way to get lifetime protection than whole life insurance.

The cost is the cost of insurance, and it changes over a lifetime. On the illustration we broke down in how much an IUL costs, it was small while the buyer was young and rose steeply late in life, as the rate for each year of coverage climbed with age.

So the question this promise raises is how long you need coverage. If it is for life, this is what the charges buy. If it is only until your children are grown or a mortgage is paid off, the fair comparison is term insurance for those years plus investing the difference — and the IUL's lifetime coverage is something you would be paying for without needing. Our article on buying term and investing the rest vs. an IUL makes that comparison on one real policy, over 70 years of S&P 500 history from 1956 to 2025. Weighted by the chance of dying at each age, the IUL's expected death benefit was about $0.75 for every $1 of the term-and-fund plan's.

Is an IUL's growth really linked to an index? Yes, but not at the rate on the page

Yes, and some share in the market's growth is a real benefit: the cash value is credited from an index such as the S&P 500. But the rate printed on the illustration will not tell you how much of that growth reaches you. What does is how the account's crediting terms would have done on real market history, after the charges, and IULCheck.com tests each account in your own illustration against the S&P 500's real years.

The rate printed on an illustration is the interest credited before the charges come out, so it is not how fast your money actually grows. Your actual growth rate — the IRR — is lower, and it depends on how long you hold the policy. We show how to work it out in IUL illustrated rate vs. IRR.

The crediting terms matter as much as the charges, and accounts on the same index can come out on opposite sides of the illustration's projection. On the policy we analyzed, the illustration's own figures grow about 5.6% a year at year 30. Over every 30-year stretch of S&P 500 history from 1946–1975 to 1996–2025, 51 in all, the account with a cap earned between 4.7% and 5.9% a year, on both sides of that 5.6%, and the account with a spread earned between 5.6% and 8.6%, at or above it. What an IUL would have earned over the last 30 years has the detail.

Not every policy offers an S&P 500 account without a cap. Lincoln's WealthBuilder IUL, for example, pairs a capped S&P 500 account with a volatility-controlled one [1]. Many policies also offer accounts on indexes built for insurers, which manage their own swings by shifting among stocks, bonds and cash. National Life's two indexes of that kind have no cap, but each deducts a maintenance fee, and National Life notes that the volatility control may reduce the overall rate of return [2].

Generous terms on an index built for an insurer deserve a question. The carrier chooses the indexes it offers, sets the terms on each, and pays for every credit, so it has little reason to offer an account that costs it more than the others. It funds each year's credit by buying options on the index, and what those options cost limits the cap or participation rate it can offer: when market turbulence raised option prices in 2016, Voya lowered the caps and participation rates on its S&P 500 strategies [3]. A higher participation rate on an index that swings less is not, by itself, a sign of more growth. Ask how the index has actually done since it launched, not only how it would have done in a back-test.

And no one can know in advance which index will do best over the decades you hold a policy, so more accounts to choose from does not mean you will hold the best one.

Those caps and spreads are not guaranteed. The contract sets the worst the carrier may move them to, and your result depends on where they actually go over the decades you hold the policy.

Sources. [1] Structured Retail Products, "Annuities roundup: Lincoln brings vol control indices to IULs", by Summer Wang, March 26, 2025: Lincoln's WealthBuilder IUL offers a capped S&P 500 account and a volatility-controlled index account. [2] National Life Group, "Indexed Universal Life Insurance: What Are Volatility-Controlled Indexes?", read October 2026: its US Pacesetter and Balanced Trend indexes guarantee no cap, a 0% floor and a participation rate of 50% or higher; each deducts a maintenance fee, and the volatility control may reduce the overall rate of return. [3] InvestmentNews, "Voya lowers caps, participation rates on indexed universal life policies", by Greg Iacurci, February 19, 2016: market turbulence raised the price of the options behind Voya's S&P 500 indexed strategies, and Voya lowered their caps and participation rates.

Does an IUL's floor protect against losses? For credits, but not for charges

Yes, for credits: when the index falls, the floor credits nothing rather than a loss, and in a crash it does exactly what it says. But the floor does not stop the charges, so a long flat market can still drain the account. IULCheck.com runs your own policy through crashes and flat markets alike.

Pacific Life's own page says as much: policy charges still apply and reduce the cash value. They come out in a bad year just as in a good one. So the market that hurts an IUL most is often not a crash, but a long stretch where the index goes nowhere: the credits stay near zero while the charges keep coming out. In how much you can borrow from an IUL, a flat market was the one where the policy we tested could not support a loan at all.

A crash at the right moment can put the policy ahead of investing for a while. In our article on sequence-of-returns risk, we ran the policy and an S&P 500 index fund through the same 50 years in 5 orders, with every dollar of the fund's dividends and gains taxed at 23.8%, a rate that overstates the fund's tax. In the real order, 1976 to 2025, the policy was never ahead. In the reversed order it was ahead for 1 year, and in the 2nd shuffled order for 2 years, each time by about 3%, or roughly $13,000. Only in the 1st shuffled order, where the index fell 38% in year 5, did the lead last: the policy was ahead in 24 years, by as much as about $100,000 in year 19. By year 50, the fund had 1.8 to 2.0 times as much as the policy in every order.

What are an IUL's tax advantages? Real, but they can cost you the growth

Two: the cash value grows without being taxed each year, and you can take money out through policy loans without paying income tax. Both are real, but on the policy we analyzed, the price paid for them in charges and crediting limits was higher than the tax they saved: over 50 years, an S&P 500 index fund came to about $9.3 million after tax, against about $5.0 million from the policy's largest tax-free loan. IULCheck.com makes that comparison at your own tax rates.

Our article comparing this IUL with an S&P 500 index fund sets out that comparison: the same premiums, the S&P 500's actual years from 1976 to 2025, and every dollar of the fund's dividends and gains taxed at 23.8%. We also ran the comparison across many other kinds of market. In most of them, investing ended with more money to spend. In a few, the policy came out ahead.

Two details make the comparison fairer than it first looks. An index fund you buy and hold is not taxed on its growth each year either — only on its dividends as they are paid, and on the gain when you sell; we take that argument apart in how much an IUL costs. And the carriers' own conditions matter: the tax-free treatment depends on the policy staying in force and not becoming a modified endowment contract (MEC), and a policy that lapses with a loan larger than what you paid in can hand you a tax bill.

Can you change what you pay into an IUL? Yes, but paying less can lapse the policy

Yes. You can pay more or less, change the timing, and borrow against the cash value, within the limits the contract sets. But paying too little for too long can lapse the policy. IULCheck.com checks how close your own policy comes to lapsing, in weak markets as well as strong ones.

On a policy funded heavily and early, borrowing held up well in our tests: in most kinds of market, the policy we tested could lend close to the most it allows for the rest of the owner's life.

But the freedom to pay less is also a way into trouble. The cash value has to stay large enough to cover the monthly charges — Nationwide's page says so plainly — and a policy that is paid too little for too long can lapse, as we set out in understanding IUL. The flexibility is worth most to someone who uses it to put money in, not to hold it back.

What are the pros and cons of an indexed universal life (IUL) policy?

Each pro that carriers promise comes with a con: lifetime coverage, but a cost of insurance that rises late in life; index-linked growth, but less than the rate on the illustration; a floor against losses, but charges that still come out in a flat year; tax advantages, but paid for in growth; and flexible premiums, but a policy that can lapse if you pay too little. IULCheck.com weighs each one on your own illustration.

So, should you buy an IUL in 2026?

Only if you need what you are paying for. Each promise holds up, and each has a price, so an IUL fits best if you need lifetime coverage and can fund the policy heavily in its early years, and poorly if you mainly want your money to grow. IULCheck.com tests all five promises on your own illustration.

An IUL fits best if you need a death benefit for your whole life, can put a large amount in during the early years, expect to hold the policy for decades, and value the floor and the tax treatment enough to accept paying for them in growth.

It fits poorly if you need coverage only for a set number of years, mainly want your money to grow, might need the money in the first decade, or may not be able to keep funding it. In those cases, what the policy charges buys protection you may not use — and on the illustration we analyzed, the tax advantage did not make up the difference in most markets.

Either way, judge the contract, not the product type. What an IUL does for you depends on its own charges and its own caps and spreads, and on how it holds up in weak markets. The rate on the illustration shows none of that.

IULCheck.com does that from your own illustration: it runs the policy through real market history and a range of other markets, measures what its charges take, and compares it with investing the same money yourself, after every fee and every tax.