IUL Calculator

How IUL works — cost of insurance, cash value, and scenarios

• Cost of insurance (COI): each month, the insurer deducts a COI from your account — the actual cost to provide the death benefit. COI is based on net amount at risk (death benefit minus account value) and increases as you age. A policy with insufficient premiums can lapse in later years when COI becomes large.
• Index crediting: the account value is credited interest tied to an equity index (commonly S&P 500 Price Return) subject to a floor (usually 0% — you never credit negative) and a participation rate or cap (the maximum you earn in a strong year, often 8–12%). This calculator uses 0% floor, no participation penalty, and illustrates at 2% (pessimistic), 5.5% (moderate) and 8.5% (optimistic) net annual credit rates.
• Fees: IUL policies typically charge 1–2% of account value per year in policy and rider fees in addition to COI. This calculator assumes 1.5% annually.
• Regulatory note: IUL illustrations are regulated by the NAIC. Actual in-force illustrations from the carrier (at the current non-guaranteed rates) are the definitive source — never rely on projections from this or any estimator tool when making a purchase decision.

IUL vs. whole life vs. term life: key differences

All three are life insurance policies; they differ in permanence, cost, and cash-value mechanics.

• Term life: pure death benefit, no cash value. Expires at the end of the term (10, 20, or 30 years). Lowest cost per dollar of coverage. Best for most income-replacement needs.
• Whole life: permanent, guaranteed cash value growth at a declared rate (typically 2.5–4%), level premiums for life. Predictable but relatively low growth. No market exposure.
• IUL: permanent, cash value linked to an equity index with a 0% floor and a cap (typically 8–12%). More growth potential than whole life in strong markets; capped upside in great markets; protected from losses. More complex — COI increases with age, creating lapse risk if premiums are too low.

IUL suits people who want permanent life insurance with more upside than whole life but protection from market downside. It is more complex to evaluate than either term or whole life; always request an in-force illustration from the carrier.

IUL lapse risk — why premium funding matters

An IUL policy can lapse (terminate, losing the death benefit) if the account value is depleted before the policyholder dies. This happens when:

• COI increases outpace account growth: as you age, the monthly cost of insurance rises steeply. In pessimistic crediting environments, COI deductions may eventually exceed credits and deplete the account value.
• Premium is too low: the minimum premium only covers the COI with little savings component. Funding closer to the guideline premium (the maximum before the policy becomes a Modified Endowment Contract) builds more account value buffer against future COI increases.
• Policy loans: outstanding loans reduce the account value; if the account value drops to zero, the policy lapses and the loan balance becomes taxable income.

This calculator shows a break-even year only for the moderate scenario. If the pessimistic scenario shows rapid account-value decline in later years, consider funding the policy more heavily or reviewing an in-force illustration from the carrier.

Compare IUL to other life insurance types

IUL is one of three common life insurance structures. Use these calculators to compare:

• Life insurance calculator (all types) — compare term life, whole life, and IUL premiums side by side from the same input form. Use the policy-type tab to switch without re-entering your details.
• Whole life insurance calculator — guaranteed cash value growth, level premiums for life. More predictable than IUL with no lapse risk from market performance, but typically lower growth potential.

IUL sits between term life (pure protection, no cash value) and whole life (guaranteed cash value). It offers the most growth potential of the three in strong markets, but requires more active monitoring to ensure the policy stays funded in later years as COI rises.

Frequently asked questions

What is an IUL (indexed universal life) policy?

An indexed universal life (IUL) policy is a permanent life insurance policy that credits interest to a cash value account based on the performance of an equity index (commonly the S&P 500 Price Return), subject to a 0% floor (you cannot lose account value from a down market) and an upper cap (the most you can earn in a strong year, often 8–12%). Unlike whole life's declared rate, IUL growth depends on market conditions within those bounds. COI (cost of insurance) is deducted monthly from the account value and increases as you age.

What is the cost of insurance (COI) in an IUL?

The COI is the monthly fee the insurer charges to provide the death benefit. It is calculated on the "net amount at risk" — the difference between the death benefit and the current account value. As the account value grows, the net amount at risk shrinks and COI decreases. As you age, the per-dollar COI rate increases steeply. In a well-funded IUL, account value growth eventually offsets rising COI rates; in an underfunded policy, COI increases can deplete the account and cause the policy to lapse.

What are the three IUL scenarios in this calculator?

Pessimistic (2%): reflects a persistent low-return environment, near the floor of what most IUL policies can credit. Moderate (5.5%): approximates the historical average net-of-cap crediting rate for IUL policies. Optimistic (8.5%): reflects a strong-market environment near the cap. Real-world returns will vary year to year and are never linear — these scenarios are educational estimates. Request an in-force illustration from your carrier for projections using current cap and participation rates.

Is IUL a good investment?

IUL is life insurance first and a savings vehicle second. Compared to term-plus-invest, IUL typically underperforms in high-return markets because of COI costs, fees, and index caps. IUL outperforms when: you need permanent insurance, you value downside protection (the 0% floor), you have maxed out tax-advantaged accounts, or you are in a high tax bracket and value the tax-deferred growth and tax-free policy loans. "Good investment" depends on funding level, carrier quality, and your specific needs — consult a fee-only insurance advisor rather than a commissioned agent.

What is a Modified Endowment Contract (MEC)?

A Modified Endowment Contract (MEC) is an IUL or whole life policy that has been overfunded beyond the IRS's "7-pay test" (too much premium paid in the first 7 years relative to the death benefit). A MEC loses most of the tax advantages of life insurance: withdrawals and loans are taxed as ordinary income, and loans taken before age 59½ incur a 10% penalty — effectively turning the policy into an annuity for tax purposes. This calculator does not model MEC limits; your carrier's illustration software enforces them.

Estimates last reviewed October 25, 2026. Results are estimates for educational use; not insurance advice. Methodology →