Family Protection

Stock Market Protected Investing

What is an IUL account?

May 9, 2024
 min read
Carlton Crabbe
CEO, Capital for Life

Are you looking for a way to protect your loved ones with life insurance while exploring the potential for investment growth? An Indexed Universal Life (IUL) insurance account might be the solution you're looking for. An IUL account combines permanent life insurance coverage with the chance to build a lifetime cash value linked to stock market performance.

In this article about how IUL accounts work, we'll explain the following:


  • How an IUL account works
  • We ask: Is IUL a good investment?
  • Which insurance companies offer IUL accounts?
  • We explain: How you open an IUL account?
  • Flexibiluty: a look at changes to IUL account premiums and cover
  • Tax Benefits of IUL accounts
  • Risks of IUL accounts
  • Maintaining your IUL account

Let's get started.

How Does an Indexed Universal Life Insurance Account Work?

So, how does an IUL account actually work? The operation of an IUL account is relatively straightforward. Your premium payments are divided into two parts. One portion pays towards the death benefit, and the other part is allocated to the cash value component of the account, which is linked to a stock market index. The cash value component earns interest based on the performance of a specific index, such as the S&P 500. However, it’s important to note that the money in your account is not directly invested in the stock market. Instead, the performance of the underlying index is used to decide the interest rate paid on the account.

IUL Caps and Collars

One of the key features of an IUL account is that it typically has a guaranteed minimum floor. This protects the account value from dropping below zero, even if the linked index performs poorly.

However, while this floor can protect against losses, most IUL accounts also have a cap on the amount of interest they can earn, which limits the growth potential of the account even if the index performs very well. So, whilst you’re protected from any market losses, your gains are limited.

There are other benefits of an IUL account including borrowing against the cash value or drawing an income for retirement which are discussed in other Capital for Life blogs.

Flexible Premiums

A key feature of IUL insurance is its flexibility. This type of policy allows for adjustable premiums to be paid into the account. This flexibility can be a significant advantage, especially for policyholders whose income may fluctuate, particularly entrepreneurs and business owners whose cash flow can be lumpy.

Is an IUL a Good Investment?

Understanding the workings of an IUL account is just the first step. The next question is - is an IUL account a good investment? The answer to this question depends on your personal financial goals and risk tolerance.

One of the main advantages of an IUL account is that it offers a combination of life insurance coverage and the potential for cash value growth linked to market indexes without direct market investment. This means that with an IUL policy, you have the opportunity to earn high returns when the market performs well.

However, while IUL policies can offer potential for high returns, they also come with certain risks. The returns on the cash value of IUL accounts are subject to participation rates, which may further limit the potential for earnings based on the performance of the associated index. Furthermore, IUL insurance may pose a risk if the indexes do not perform as expected, potentially requiring additional funds to prevent policy lapse. Therefore, IUL policies require a full understanding of the fees, caps, participation rates, and other factors that affect the policy’s performance.

So, while an IUL account can offer attractive returns, it’s not suitable for everyone. IUL’s are typically best suited for experienced investors who understand these complexities and are comfortable with the level of risk involved. To navigate the complexities and potential risks of IUL investments effectively, it's crucial to consult with an experienced life insurance agent.

Which Insurance Company Offers IUL Accounts?

Several international life insurance companies offer IUL policies, each with unique features and benefits. Careful research and comparison are crucial before choosing a provider. Companies like Manufacturers Life of Canada, Sun Life of Canada, Transamerica, and Pan American Life Insurance Group are major players in the international IUL market for high-net-worth clients.

To illustrate the differences, consider the following: Transamerica and Pan American Life Insurance Group offer IUL policies with diverse investment options and living benefits for chronic, critical, and terminal illnesses.  Sun Life of Canada may grant up to $3 million in coverage without a medical exam for healthy applicants aged 18 to 55. Manufacturers Life of Canada distinguishes itself with features like free policy withdrawals.

Insurance providers offer varying IUL policy features, so do your research. Also, don't overlook the importance of the insurer's financial strength – it guarantees the eventual payout.

How do I Open an IUL account?

If you've decided an IUL policy aligns with your financial goals, here's how to get started:

Apply for Coverage: Begin by applying for an Indexed Universal Life (IUL) insurance policy. The insurer will evaluate your health and risk factors to determine eligibility. This may involve a medical exam, providing medical records, or a phone interview.

Choose Your Funding

  • Lump Sum: Consider if you want to make a single, large premium payment.
  • Recurring Premiums: You can choose to pay premiums over time. A comfortable percentage of your income dedicated to retirement savings is a good starting point.

Gather Documentation

Proof of Residency: Provide documents verifying your address.

  • Visa (if applicable): If living outside your home country, include a copy of your visa.
  • Tax Information: Supply your tax code or Taxpayer Identification Number (TIN).
  • W8-BEN Form: Complete this form for tax purposes.

Medical Exam (if required)

Insurers often require a medical exam for larger coverage amounts (over $5 million). Costs can reach US$1,500, but may be reimbursed if you proceed with the policy.

Set Up Ownership Structure

Offshore Trust: If using a trust to hold your IUL, provide a copy of the trust deed and beneficiary details.

Offshore Company: For company ownership, submit incorporation documents.

Other Options: Consult your advisor about other acceptable structures.

Link a Bank Account: Designate a bank account (personal or company-owned) for premium payments.

Work with a Licensed Agent: A licensed insurance agent will guide you through the process, gathering your documents and submitting them to the insurer. Many international IUL transactions are conveniently handled remotely.

Flexibility in IUL Premiums and Coverage

One of the most appealing aspects of Indexed Universal Life (IUL) policies is their adaptability. Policyholders can adjust their premiums and death benefits as their financial situation and needs change.  Here's how this flexibility works:

Adjusting Your Premiums:  With an IUL, you're not locked into a fixed premium amount. If your income increases, you can choose to pay more to potentially boost your cash value growth. Conversely, if money gets tight, you may be able to lower your premiums temporarily.

Customising Your Coverage: Your life insurance needs might fluctuate over time. IUL policies can allow you to increase or decrease your death benefit, ensuring the right protection level for your loved ones.

Prioritising Cash Value:  If building cash value is your primary goal, an IUL can be structured to allocate more of your premiums towards this, potentially with a smaller initial death benefit. This can maximise your potential returns in your cash value account.

This flexibility allows you to tailor your IUL policy to your evolving financial goals and life circumstances.

Tax Benefits of IUL Accounts with Cash Value

One of the most attractive aspects of IUL accounts is their tax benefits. International IUL policies offer:

  • Tax-free growth on the cash value
  • No capital gains tax on cash value increase or funds accessed through policy loans
  • Tax-deferred cash value growth in retirement planning
  • The possibility of tax-free distributions to cover retirement expenses
  • Tax-free death benefit for beneficiaries, ensuring a financial legacy without additional tax burdens.

However, while these are the potential indexed universal life policy tax benefits, it’s crucial to check the tax implications of your own local tax rules in your country of residence.

Recognising the Risks: IUL Accounts and Death Benefit

While IUL accounts offer many potential benefits, it's essential to understand the risks involved. Here's why:

Market-Linked Performance: Since your cash value growth is tied to a stock market index, prolonged market downturns can negatively impact your returns.

Alternatives: Term life insurance often provides more affordable, guaranteed protection without the investment risk of an IUL. Whole life insurance, while more expensive than term, offers predictable premiums and lifelong coverage, unlike IULs.

Risk of Policy Lapse: If your cash value can't cover policy costs during poor market performance, your IUL policy might lapse. This means losing both your built-up cash value and the death benefit.

The Role of an Insurance Advisor in Choosing the Right IUL Account

Choosing an IUL policy is not a decision to be taken lightly, and based on our firsthand experience, a skilled life insurance advisor can add significant value to your overall financial strategy by tailoring an IUL policy to your goals. They can help you:

Understand the Risks: Advisors can explain how IULs might react in various market scenarios.

Prevent Lapse: Advisors help you strategise to avoid premium shortfalls and protect your policy.

Assess Alternatives: They can compare IULs to other insurance types to determine the best fit for your needs.

The Impact of Account Fees on Your IUL Investment

When considering an indexed universal life insurance, it's important to factor in the impact of fees on your potential returns. IULs can come with various charges, including:

Premium Expense Charges: Fees associated with processing your payments.

Administrative Expenses: Costs to manage and maintain your policy.

Rider Costs: Fees for additional policy features or benefits.

Commissions: Compensation paid to your insurance agent.

These fees and charges can cerode your IUL's cash value growth over time. It's essential to carefully review the fee structure before committing to any policy. Choose a policy with realistic growth expectations and make sure you understand how the account fees impact the cash value accumulation account.

How to Maintain Your IUL Account Over Time

Opening an IUL is a significant step, but ongoing maintenance is key to maximizing its potential. Here's what we advise at Capital for Life:

Regular Reviews: Stay informed by requesting updated policy illustrations and valuations. This helps you track performance and make adjustments if needed.

Maximise Benefits: Many IULs come with valuable riders and additional benefits. We guide our clients to ensure they're fully utilizing these features and not just focusing on the death benefit.

Flexible Premiums: IULs offer payment flexibility, which is useful during unpredictable times. However, consistently meeting your premiums is essential to prevent your policy from lapsing due to insufficient cash value.

Understanding the Risks: Be aware that fees and market downturns can impact your cash value growth.

Capital for Life's Expertise

Our experience has shown that proactive monitoring and strategic adjustments can help you get the most out of your IUL policy. We work closely with high net worth clients and financial advisers to:

Analyse Performance: Review illustrations to assess if your IUL is meeting expectations.

Adapt to Market Conditions: Suggest premium adjustments to align with market trends and your goals.

Identify Opportunities: Help you explore potential benefits and riders you might be overlooking.


In conclusion, IUL accounts offer a unique blend of life insurance protection and market-linked growth potential. If you want both a guaranteed death benefit for your loved ones and the possibility of building cash value alongside stock market performance, an IUL is worth exploring.

However, it's essential to fully understand these policies before committing. To make the best decision for your needs: compare IUL accounts from different insurance company providers, as their offerings and fees will vary. Most importantly, consult with a trusted financial advisor or life insurance agent.  They'll guide you through getting a ULI quote and how an IUL account might align with your overall financial goals and ensure you understand the benefits and risks. Through careful research and professional advice, you can confidently determine if an IUL account is a valuable addition to your financial strategy.

Frequently Asked Questions

How does an IUL account work?

An Indexed Universal Life (IUL) insurance policy combines the protection of life insurance with the potential for cash value growth. Here’s how it works:

Premiums: You pay regular premiums into your IUL account.

Death Benefit: A portion of your premiums goes towards securing a death benefit for your beneficiaries.

Cash Value: The remaining portion of your premiums is placed into a cash value account, specifically into the cash value portion.

Market-Linked Growth: The cash value portion earns interest based on the performance of a chosen stock market index, like the S&P 500. This means your cash value portion has the potential to grow alongside market gains, reflecting the performance of the underlying stock market index.

Protection: Many IUL policies offer a guaranteed minimum interest rate, providing downside protection if the market performs consistently poorly.

Is an IUL account a good investment?

Indexed Universal Life (IUL) accounts can be a complex investment option, so it's crucial to weigh the pros and cons based on your individual situation. If you're seeking a long-term investment with market-linked growth potential, some downside protection, and tax benefits, an IUL could be a good fit.  However, it's best for individuals with a low to medium risk tolerance and a thorough understanding of the product.

Who should consider opening an IUL account?

Indexed Universal Life (IUL) insurance might be worth considering if you:

Prioritise both life insurance and growth potential: IULs provide a death benefit while offering the possibility of cash value growth connected to stock market performance.

Have a long-term investment horizon: IULs are best suited for those who don't need immediate access to their cash value.

Desire some downside protection: The guaranteed minimum interest rates in many IUL policies offer a degree of protection during market downturns.

Understand the risks and fees: IULs can be complex and come with fees that may impact your returns. It's essential to fully understand the product before investing.

While high income or net worth can make it easier to afford IUL premiums, these factors alone don't determine if an IUL is the right financial choice. It depends on your individual goals and risk tolerance.

How do I maintain my IUL policy over time?

Here are the key steps to maintaining your Indexed Universal Life (IUL) policy:

Stay Informed

  1. Review Policy Illustrations: Check your annual policy illustrations to track cash value growth, interest rates, fees, and how they align with your original projections.
  2. Monitor Market Performance: Keep an eye on the performance of the stock market index your IUL is linked to, as this will impact your potential returns.

Manage Payments

  1. Make Consistent Premiums: Prioritise paying your premiums on time to avoid the risk of your policy lapsing.
  2. Adjust Premiums (if needed): If your income or financial situation changes, your policy may allow you to adjust your premium payments accordingly.

Seek Professional Guidance

  1. Consult Your Advisor: Meet with your financial advisor regularly to review your policy's performance, discuss any changes to your financial goals, and make adjustments as needed.


IUL accounts offer a unique blend of life insurance protection and market-linked growth potential. So, if you want both a guaranteed death benefit for your loved ones and the potential to build cash value from market performance, an IUL is worth exploring.

However, it's essential to fully understand these policies before committing.  To make the best decision for your needs: compare IUL accounts from different insurance providers, as their offerings and fees will vary. Most importantly, consult with a trusted financial advisor.  They'll guide you through how an IUL account might align with your overall financial goals and ensure you understand the benefits and risks. Through careful research and professional advice, you can confidently determine if an IUL account is a valuable addition to your financial strategy.

Interested in the unique benefits of an IUL account? Capital for Life is a trusted life insurance broker specialising in Indexed Universal Life (IUL) accounts for high-net-worth individuals and business owners in over 200 countries.  We help you maximise the value of your IUL account to achieve your financial goals. Financial advisors, tax advisors, lawyers, wealth managers, trust companies, and private banks rely on our IUL expertise to best advise their high-net-worth clients. Elevate your financial strategy with our guidance on strategically leveraging IUL accounts. Contact us today to explore how Capital for Life can help you open an IUL account to safeguard your future.


This article is authored by Carlton Crabbe, Chief Executive Officer of Capital for Life, a specialist in providing indexed universal life insurance accounts. The information provided in this article is for educational and informational purposes only and should not be construed as financial or investment advice. While the author possesses expertise in the subject matter, readers are advised to consult with a qualified financial advisor before making investment decisions or purchasing insurance products.

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