For people who already own an IUL

Keep your IUL or surrender it? Check your own policy first.

Upload your indexed universal life (IUL) illustration. We read what surrendering returns in every year, find when the policy first passes what you paid in, and test whether it stays in force through weak markets if you keep it.

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Hiding the personal details first

Your name, address, policy number and your agent’s details change nothing in the analysis. Remove them and we never see them.

Preview, on a Mac

  1. 1.Open the PDF and choose Tools → Redact.
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Adobe Acrobat

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Use the Redact tool, not a drawn rectangle. A filled shape drawn over text keeps the words underneath it, where they can still be selected and copied. It looks hidden and is not.

Two to keep: your date of birth or issue age, and your risk class. Without them the analysis is built on the wrong insured — if you would rather remove those too, type just those two in on the next screen.

 first, or type the figures in yourself.

What you will see

Both choices, side by side, on your own figures.

The premiums you have paid are the same whichever way you decide. These are the figures that change between keeping the policy and ending it.

On a real policy

What we found when we tested one.

Question 1

Should I surrender my IUL, or keep paying?

What you would receive depends on the year, and taking money out does not have to mean ending the policy.

Surrender value, as a share of the premiums paid so far
Year 1
59%
Year 2
77%
Year 3
86%
Year 4
92%
Year 5
98%
Year 6
104%
What you paid in

One real illustration, at its illustrated 6.59% rate.

What surrendering returns, year by year

On the policy we analyzed, surrendering in year 1 would return about 59% of the premium paid. The surrender value does not pass the total premiums paid until year 6, and that assumes the illustrated rate every year. We read the surrender values from your own illustration.

Is IUL a bad investment? 7 criticisms, tested
A bar chart of the total fees one IUL policy charges each year from age 31 to 100, split into the cost of insurance and all other charges. The first 10 years carry the heaviest early charges, mostly charges other than insurance. From age 41 the bars are small and mostly the cost of insurance. From the late 70s they climb steeply to a peak at 91, then fall to almost nothing from 96.

Where the charges fall

On the policy we analyzed, the heaviest charges come in the first 10 years. After that they are small next to the account, until the cost of insurance climbs from the late 70s. How many of your policy's heavy early years are already paid changes what keeping it costs from now on.

How much does an IUL cost?
Two panels, drawn to one scale. Policy Loan: before the loan, a $500,000 death benefit with $300,000 of cash value inside it. After taking out $200,000 as a loan, the net death benefit is $300,000 and $100,000 of cash value remains; you receive $200,000. Partial Surrender: the same starting policy; after withdrawing $200,000, the death benefit is $300,000 and $100,000 of cash value remains, and you receive $160,000, assuming you paid $40,000 in tax.

A loan or a partial surrender

A partial surrender takes money out and may be taxed. A policy loan is borrowed against the cash value, and the policy stays in force. Both lower the death benefit by the amount taken.

How to access cash value: surrender vs. loan
A horizontal bar chart. Through every kind of crash, through a lost decade, through violent swings and on the market history data, the policy will lend 95% of the account, which is the ceiling it allows. In a strong market it lends 93%. In a weak market the figure is 0%.

How much you could borrow, market by market

We searched for the largest loan from age 60 that still keeps one real policy in force to 100. In most markets it was 95% of the account, the most the policy allows. In a weak market it was 0%.

How much can you borrow from an IUL?
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Question 2

Could my IUL lapse?

A policy lapses when the cash value can no longer pay the charges. On the policy we analyzed, a crash did not empty the cash value, but a long flat market did.

A combined chart over 70 policy years. Bars show each year's index result on the flattest market tested, none larger than about 8% in either direction. A line shows the policy's cash value with nothing borrowed: it climbs to $104,000 at age 52, drifts sideways for twenty years, then falls away and reaches zero at age 89, marked with a red cross.

A flat market, and no loan at all

In the flattest market we tested, the index credited close to nothing year after year while the charges kept coming out. With nothing borrowed, the cash value reached zero at age 89.

How much can you borrow from an IUL?
A vertical flow diagram of five steps. One, underfunding: minimum premiums or skipped payments. Two, cash value depletion: monthly charges are deducted from the cash value. Three, rising cost of insurance at older ages. Four, a grace period notice asking for cash to keep the policy in force. Five, lapse: the death benefit ends, and an outstanding loan can become taxable.

Paying less than planned

An IUL lets you pay less in a tight year. The charges still come out of the cash value every month, and the cost of insurance rises with age, so a policy funded near the minimum can run out.

Understanding IUL: can it lapse if you pay less?
Two columns. On the left the policy is still in force when you die: the death benefit is paid, the loan and its interest are taken off the top and never taxed, and the rest goes to your beneficiary. On the right the policy lapsed first: there is no death benefit, the loan is still outstanding, and every dollar of gain borrowed is taxed as income.

A lapse with a loan outstanding

If the policy is in force when you die, the loan is paid out of the death benefit and is never taxed. If it lapses first, there is no death benefit, and the gain you borrowed is taxed as income.

How IUL loans work
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Questions

Before you surrender an IUL

What do I receive if I surrender my IUL?
You receive the cash surrender value: the cash value minus any surrender charge, and minus any loan outstanding. The death benefit ends. On the policy we analyzed, the surrender charge stayed the same for the first 3 years and then fell every year until it reached zero in year 11. Surrender vs. loan →
Do I pay tax when I surrender an IUL?
You can. A full surrender can create taxable income when what you receive is more than your investment in the contract, which is generally your cost basis. How each way out is taxed →
Can I take money out of an IUL without surrendering it?
Yes. A policy loan borrows against the cash value and keeps the policy in force, and a partial surrender withdraws part of it. Both lower the death benefit. A loan stays tax-free only while the policy stays in force: if it lapses with a loan outstanding, the gain borrowed is taxed as income. How IUL loans work →
What happens if I stop paying premiums on my IUL?
The charges keep coming out of the cash value every month. If the cash value can cover them, the policy stays in force. If it cannot, the policy lapses, and the cost of insurance rises with age, so the charges grow over time. Can an IUL lapse if you pay less? →

How it works

See what we found before you decide.

  1. 1

    Upload your illustration

    The PDF you were given. Take out your name and policy number first if you like.

  2. 2

    Check what we read

    We take the figures from your illustration and rerun its calculations to within 5%. You can correct anything we got wrong.

  3. 3

    See what we found

    A preview of the findings is free. You decide afterward whether you want the full report.

From the blog

More on getting money out of an IUL.

Every article →

Is an IUL worth it?

How do I get money out of an IUL?

See both choices on your own policy.

Upload your illustration — freeOr type the figures in

An analysis of one document. Not investment, tax or insurance advice.