Stock Market Protected Investing

Retirement Planning

Forget Stock Market Timing: Grow Your Wealth with Indexed Universal Life Insurance (IUL)

June 19, 2024
 min read
CEO, Capital for Life

Are you tired of the rollercoaster ride of the stock market? The constant ups and downs can make even experienced investors anxious. Many try to ‘time the market’, buying stocks low and selling them high, but this strategy is notoriously difficult and loses most investors money. However, indexed universal life Insurance (IUL) offers a unique way to achieve market-linked growth while minimising the stress of timing your investments.

Let's take a look at the psychology of investing and why you don't need to worry about short term stock market ups and downs with an IUL.

Why Market Timing Often Fails

FOMO and Panic: When the market rises, the fear of missing out (FOMO) kicks in. Conversely, a falling market can trigger panic selling. These emotional reactions can lead to poor investment decisions.

Unpredictability: The stock market's short-term movements are impossible to predict consistently.

Missed Opportunities: If you sell out of fear, you could miss out on significant gains when the market recovers.

How IULs Help You Sidestep Market Timing

IULs address this challenge by combining:

Downside Protection: Your cash value within the policy has a built-in floor (usually 0%), protecting your money from market crashes.

Market-Linked Growth: Your IUL can track a stock market index like the S&P 500, letting you benefit from market gains.

Dollar-Cost Averaging: By making regular premium payments, you automatically dollar-cost average. This means buying at different market levels, smoothing out volatility over time.

The Power of IUL Resets

But IULs go even further: most reset annually. When the market dips, your existing investments are safe. As the market rebounds, all your invested money benefits from the growth, including the contributions made during the dip!

Example: Dollar-Cost Averaging with IUL

Imagine you're 50 and want to accumulate $1 million by age 60. You invest $100,000 annually into an IUL linked to the S&P 500. In year three, the market takes a dip. Your $100,000 now buys in at a lower point of the index, positioning you for greater returns when the market recovers. Importantly, your previous investments from years one and two are protected from the downturn and ready to ride the next wave of growth.

Multi-Pay IULs: A Smart Way to Dollar-Cost Average

With multi-pay IULs, you concentrate your premium payments over a set period, like 10 years. This streamlines your dollar-cost averaging strategy. After that period, your life coverage continues without further premiums.

Understanding How IULs Work

Death Benefit: IULs offer life insurance to protect your loved ones.

Cash Value: Premiums build cash value within the policy.

Market-Linked Growth: Cash value growth is tied to an index's performance.

Caps and Participation Rates: To balance downside protection, IULs have caps (limiting maximum gains) and participation rates (crediting you with a percentage of the index's gains).

Your IUL Investment Options

You are no just stuck with stock market exposure investing. IUL policies offer a variety of investment options to suit different risk tolerances and financial goals. Here are your most common options:

  • Indexed Accounts: These accounts link your cash value growth to the performance of a specific market index, such as the S&P 500 or Nasdaq. Your returns are typically capped (maximum gain) and have a floor (minimum guarantee, often 0%). This allows for potential market-linked growth while protecting your investment from losses during market downturns.
  • Fixed Accounts: These accounts offer a guaranteed fixed interest rate. While the returns are generally lower than indexed accounts, they provide stability and predictability for risk-averse investors. Current fixed account rates in IULs are paying over 4% per year.
  • Combination Strategies: Many IUL policies allow you to allocate your cash value across both indexed and fixed accounts, creating a diversified investment strategy that balances growth potential with risk management.

The specific investment options available, the indices used for indexing, and the interest rates offered can vary between insurance companies and IUL policies. If you've had enough of stock market investing, it's good to know you can allocate some, or all of your policy cash value to a different investment strategy like fixed account returns.

Who Should Consider IULs?

IULs may be attractive if you're:

• Risk-averse but want stock market-linked growth potential

• Seeking to diversify your investment portfolio

• A retiree (or near retirement) concerned about volatile stock markets

• Interested in life insurance and cash value accumulation

• A long-term cautious investor who wants to benefit from dollar-cost averaging

• Focused on estate planning and a tax-efficient legacy strategy


Stock markets are volatile with constant ups and downs that can be nerve-wracking. The temptation to time the market is understandable, but this strategy often leads to frustration and is almost guaranteed to lose you money as you miss the best days of stock market returns.

With index universal life insurance, you can benefit from dollar-cost averaging, smoothing out market fluctuations over time. Add to this the guaranteed floor that protects your accumulated wealth during market downturns. This combination lets you focus on building your financial future without the constant anxiety of trying to predict market movements.

You can also diversify your investment risk by choosing the insurers fixed account or blended account returns strategy.

On top of this, there is a high cash death benefit paid to your loved ones from an IUL when you pass away.

If you're searching for a way to potentially grow your wealth, get better portfolio diversification, and protect and grow your legacy, the advantages of an indexed universal life insurance policy could make a compelling addition to your portfolio.

Frequently Asked Questions (FAQs)

How does dollar-cost averaging work with an IUL, and how does it benefit me?

With IULs, your regular premium payments automatically implement dollar-cost averaging. You buy into the linked market index at various price points. Over time, this smooths out the average price you pay, potentially reducing risk and improving returns compared to a lump-sum investment.

What does zero-floor protection mean in an IUL, and how is it guaranteed?

The zero-floor (usually a 0% interest rate floor) guarantees that your IUL's cash value will never decline directly due to market losses. Insurance companies offering IULs guarantee this through various methods, including hedging strategies and managing their investment portfolios.

If I invest during a market downturn, how does my IUL benefit from the zero-floor protection?

During downturns, your IUL premiums buy more shares or units of the linked index at a lower price point. Importantly, your previous investments are protected by the zero floor, shielding them from losses. This positions you for increased gains when the market recovers.

Do the caps and participation rates in IULs cancel out the benefits of dollar-cost averaging and zero-floor protection?

While caps and participation rates limit upside potential in strong markets, they work in your favour during downturns. Dollar-cost averaging still helps you smooth out your costs over time. The zero-floor protection remains essential in shielding your investments from losses.

Can I still lose money with an IUL if the fees are higher than the returns?

Yes, IULs can have fees that erode your returns. If your IUL's fees consistently exceed the interest credited (even with zero-floor protection in place), your cash value can still decline over time. It's crucial to understand an IUL's fee structure before investing.

Case Study
Forget Stock Market Timing: Grow Your Wealth with Indexed Universal Life Insurance (IUL)

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