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What is Indexed Universal Life Insurance?

Published: April 2016

Indexed universal life insurance is a type of permanent life insurance — it stays in place as long as you live and keep paying premiums, according to the National Association of Insurance Commissioners (NAIC).

As with other types of permanent life insurance, part of the premium you pay goes toward a death benefit, and the other part is credited to a cash value account, says the American Institute of CPAs (AICPA). The money in your cash value account has the potential to earn interest based on the index chosen by your insurer, the AICPA explains.

Indexed universal life insurance has a few features that make it distinct.

Mom reading to young daughters.

Key Features of Indexed Universal Life Insurance

No fixed interest rate. When you purchase indexed universal life insurance, funds in your cash value indexed account don't earn a fixed rate of interest, the NAIC explains. Instead, your rate of interest is based on an index chosen by your insurer.

According to the Securities and Exchange Commission, an index tracks the performance of the specific basket of investments, such as stocks or bonds. Your insurer selects the index, and then calculates an interest rate based on the performance of the index, says the NAIC. Your insurer then credits that interest to your cash value account.

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Interest rate guarantee. The NAIC also says that policies typically include an interest rate guarantee, so a minimum interest rate is paid even if the index produces lower returns. However, interest rates are usually also subject to a "cap" or upper limit.

There are several other features of indexed universal life insurance, according to the AICPA:

Adjustable premium payments (within limits)1: Your policy will likely specify a planned premium for you. However, if you have enough money in your cash value account, you may be able to use those funds to help pay your premiums.

Adjustable death benefit1: Death benefits are typically flexible with an indexed universal life policy, and you can usually lower them at any time. However, increasing the death benefit may require you to pass a medical examination.

Access to cash value2: In case of emergency, you may be able to borrow from your indexed universal life insurance policy, although you will likely be charged interest for doing so. You may also be able to make withdrawals from your cash value account. However, doing so may permanently reduce your death benefit. If you don't maintain a large enough balance in your cash value account, withdrawals may also risk causing your policy to lapse.

Who Might Choose Indexed Universal Life Insurance?

The Insurance Information Institute suggests that permanent life insurance may be a good option if you need lifelong life insurance and want to build your cash account over the long term.

The NAIC points to the fact that indexed universal life insurance offers both potential for growth based on the market, as well as protection from losing value if the market falls. If these features appeal to you, you might consider indexed universal life insurance. An insurance agent can help you make an informed decision about whether indexed universal life insurance is right for you.

Life Insurance offered through Allstate Life Insurance Company, Northbrook, IL; Allstate Assurance Company, Northbrook, IL; Lincoln Benefit Life Company, Lincoln, NE and American Heritage Life Insurance Company, Jacksonville, FL. In New York, life insurance offered through Allstate Life Insurance Company of New York, Hauppauge, NY.

Securities offered by Personal Financial Representatives through Allstate Financial Services, LLC (LSA Securities in LA and PA). Registered Broker-Dealer. Member FINRA, SIPC. Main Office: 2920 South 84th Street, Lincoln, NE 68506. (877) 525-5727 Check the background of this firm on FINRA's BrokerCheck website.

Variable universal life products are long-term investments designed to provide life insurance protection and flexibility in connection with premium payments and death benefits. You should carefully consider the investment objectives, risks, charges, and expenses of the investment alternatives before purchasing a policy. These policies have limitations and are sold by prospectus only. The prospectus contains details on the investment alternatives, policy features, the underlying portfolios, fees, charges, expenses, and other pertinent information. To obtain a prospectus or a copy of the underlying portfolio prospectuses, please contact Lincoln Benefit Life Company, in New York, Allstate Life Insurance Company of New York., or go to Please read the prospectuses carefully before purchasing a policy.

1Increases in benefits are subject to underwriting approval. Changes to benefits can have income tax consequences. Consult a tax advisor for additional information.

2Loans or partial withdrawals can reduce the policy's cash value and death benefit, can increase the possibility of policy lapse, and may result in a tax liability. Consult a tax advisor for additional information on the tax treatment of loans or withdrawals from a life insurance policy.

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