When it comes to life insurance, there are two basic “flavors”: Term Insurance and Permanent Insurance. There are also more complex hybrid products, including the topic of this blog post, indexed universal life Insurance.

What is Indexed Universal Life Insurance?

Indexed universal life coverage is like traditional universal life (UL) policies in that it includes both an insurance death benefit and a cash value component. Where the cash value in a traditional UL policy pays fixed interest rate, the cash value in indexed universal life policies pays based on the performance of a market index, such as the S&P 500 index.

Indexed Universal Life is not for everyone, but it can be an attractive way to provide life insurance coverage and retirement savings wrapped in one product. Let’s explore the pros and cons of Indexed Universal Life Coverage:

Potential Benefits

  • The policy provides a fixed death benefit amount of life insurance coverage that can protect your loved ones if you die while the policy is in force. As with other types of life insurance, this death benefit is income-tax free to your beneficiaries.
  • The upside potential gained by exposure to the stock market index could result in a better return on policy cash value than in a traditional policy.
  • Premiums on indexed universal life policies are sometimes lower than standard policy premiums.
  • Funds accumulate on a tax-deferred basis.
  • There’s no limit to the amount you can contribute to the policy’s cash value.
  • Insurance companies offering indexed universal life policies guarantee that the value of the cash value account will not decrease even if the index the policy is tied to has negative returns.
  • You may be able to use both a fixed cash value component and an indexed component at the same time.


  • When the stock market is not performing well, the returns on cash value in indexed universal life policies may be lower than in traditional policies.
  • Your policy’s returns will never mirror the index exactly.
  • Some indexed universal life policies cap returns at a certain level, limiting the policy’s growth potential.
  • Indexed universal life policies are complex products.
  • As with other types of permanent life insurance, there are fees associated with indexed universal life coverage. Anyone considering purchasing an indexed universal life policy should carefully evaluate the expenses of various options.

When to Consider Indexed Universal Life Insurance

The potential investment growth and tax benefits indexed universal life policyholders can enjoy may be attractive for high-net worth individuals. It is important to understand that indexed universal life insurance is a long-term product and is not suitable for everyone.

When you buy life insurance, the type of policy and coverage options you choose should be tailored to meet your specific needs and goals.

To learn more about indexed universal life and other types of insurance products, and to explore the best way to protect your loved ones, contact Christopher Ferguson Insurance in Tyngsboro today online or call us at 617-386-6572 today.