Indexed Universal Life Insurance (IUL)

Indexed universal life insurance, or IUL, is a type of permanent life insurance. Like other universal life policies, it combines a death benefit with a cash value account. The National Association of Insurance Commissioners describes IUL as including both fixed and variable features, with the interest earned tied to external investment indexes. The policy does not buy the index directly. Instead, the insurer credits interest using a formula based on index performance.

That formula usually includes a cap, the most you can be credited in a period, and a floor, often 0%, which keeps poor index performance alone from reducing your cash value. Participation rates can also limit how much of an index gain counts. Caps, participation rates, and policy charges are generally not guaranteed, so an insurer can lower crediting or raise costs after you buy, which can shrink cash value and force higher premiums to keep the policy in force.

IUL policies are commonly sold with illustrations projecting years of future growth. Class actions have alleged that insurers raised cost of insurance charges beyond what policies allowed, and that sales illustrations assumed returns the product could not realistically deliver. Other complaints involve premium financing plans, where buyers borrow to pay premiums and face losses if crediting falls short. Insurance regulators have tightened rules on how IUL returns may be illustrated, but disputes continue.

If your policy is lapsing or charges rose sharply, gather the original illustration, annual statements, and any notices of rate changes. Our guides on how to sue a company and class action versus individual lawsuit explain the two paths.