Problems with indexed universal life insurance

AffiliatePal is reader-supported. When you buy through links on our site, we may earn an affiliate commission.



Indexed Universal Life Insurance (IUL) has gained popularity in recent years as a flexible and potentially lucrative life insurance product. It combines the benefits of a traditional life insurance policy with the opportunity for cash value growth tied to the performance of a stock market index. While IUL can offer advantages, it is important to understand the potential problems associated with this type of insurance. In this article, we will explore some of the key issues that individuals should consider before purchasing indexed universal life insurance.

Limited Growth Potential

One of the main problems with indexed universal life insurance is its limited growth potential compared to other investment options. While IUL policies offer the opportunity to participate in stock market gains, they often come with caps or limits on the amount of growth that can be credited to the policy. This means that policyholders may not fully benefit from significant market upswings, potentially limiting the overall return on investment.

Complexity and Lack of Transparency

Indexed universal life insurance policies can be complex and difficult to understand. The calculations used to determine the policy’s cash value and death benefit can be convoluted, making it challenging for policyholders to fully grasp the mechanics of their coverage. Additionally, the lack of transparency in IUL policies can make it difficult for policyholders to evaluate the true costs and benefits of the product. This lack of clarity can lead to misunderstandings and dissatisfaction with the policy.

Costs and Fees

Another problem with indexed universal life insurance is the costs and fees associated with these policies. IUL policies often have higher premiums compared to traditional life insurance policies, as a portion of the premium goes towards the cash value component. Additionally, policyholders may be subject to various fees, such as administrative fees, mortality charges, and surrender charges. These fees can significantly reduce the overall returns of the policy and may make it less attractive for some individuals.

Market Volatility

Indexed universal life insurance policies are tied to the performance of a stock market index, which exposes policyholders to market volatility. While this can potentially result in higher returns during bull markets, it also means that policyholders bear the risk of market downturns. If the index performs poorly, the cash value growth of the policy may be limited or even negative, potentially eroding the policyholder’s investment.

Limited Flexibility

While indexed universal life insurance policies offer some flexibility, such as the ability to adjust premium payments and death benefit amounts, they still have limitations. Policyholders may face restrictions on when and how they can access the cash value of the policy, and surrender charges may apply if the policy is terminated prematurely. This lack of flexibility can be problematic for individuals who require access to their funds or need to make changes to their coverage.


Indexed universal life insurance can be an attractive option for individuals looking for life insurance coverage with the potential for cash value growth. However, it is crucial to consider the potential problems associated with this type of policy. These include limited growth potential, complexity, high costs and fees, market volatility, and limited flexibility. Before purchasing indexed universal life insurance, individuals should carefully evaluate their financial goals and risk tolerance to determine if this type of policy aligns with their needs.


– Investopedia:
– The Balance:
– Forbes:
– NerdWallet: