Indexed Universal Life (IUL)

An IUL is a Universal Life Insurance policy where the interest credited to your Cash Value follows a market index, most commonly the S&P 500, without being invested in it. A floor (typically 0%) means an index crash credits you nothing rather than costing you money; a cap or participation rate limits how much of the upside you collect. Index gains 20%, your cap is 10%, you're credited 10%. Index drops 30%, you're credited 0%.

Important nuance: 0% floor is not 0% loss. Policy charges, cost of insurance, riders, admin fees, still come out of the cash account in a flat year, so the real floor is slightly negative. And the moving parts move: insurers can lower caps and participation rates on in-force policies, and many did through the 2010s.

Done well, IUL is a legitimate accumulation tool. Maximum-funded (just under the Modified Endowment Contract (MEC) line), minimum death benefit, from a strong carrier, it can deliver tax-advantaged growth with real downside protection, the design logic behind many LIRP (Life Insurance Retirement Plan) strategies. Done badly, underfunded, sold on an 8% illustration, bought for the brochure, it's the policy most likely to generate an angry letter in your 70s.

The whole-life-versus-IUL debate is mostly tribal; the honest answer is side-by-side illustrations. Whole Life Insurance wins on guarantees, dividend history, and predictability, the qualities Infinite Banking depends on. IUL wins on upside potential in strong index decades. Jason Herring's practice at I&E is built on showing both without an agenda, because the right answer depends on the client's goal, not the agent's favorite product.

If you're evaluating one, stress-test the illustration at 2–3% lower crediting than shown, check the carrier's cap-reduction history, and confirm the policy still works when you stop paying premiums at retirement. Those three checks catch most future disappointments.