What is the fixed account in an IUL policy?
An indexed universal life (IUL) policy lets the policyholder split the cash value between index accounts and a fixed account. The fixed account earns a fixed interest rate that the insurer declares, usually each year, paid from its general account.
Some insurers credit new premiums at a new money rate, based on current investment yields, and existing balances at a portfolio rate, based on the yield of the insurer's whole portfolio. A fixed-rate universal life policy credits its entire account this way. In an IUL, premium that misses a segment's lock-in date waits in a holding account earning fixed interest, and the fixed account gives a steady part of the allocation alongside the 0% floor on the index accounts.
The fixed account is the part of an IUL policy that earns a rate of interest the insurer declares, rather than an index-linked credit. The contract sets a minimum interest rate below which the declared rate cannot fall.
