Pitched an Indexed Universal Life (IUL)? Here’s Why I Don’t Sell Them

If you’ve been shown an IUL lately, you probably heard phrases like “market upside with no downside,” “tax-free retirement income,” and “be your own bank.” Sounds perfect, right? I’m a licensed life insurance agent, and I choose not to sell IULs. Not because they never work, but because most shoppers aren’t told how many moving parts, fees, and “if-this-then-that” rules sit under the hood. My goal here is to explain—in plain English—what’s really going on, where people get burned, and what I recommend instead if you want protection you can trust and a plan you can actually keep.

No scare tactics. No product bashing. Just straight talk so you can decide with clear eyes.

Quick refresher: what an IUL is (and isn’t)

An Indexed Universal Life policy is a type of permanent life insurance. It has two buckets:

1. Insurance: a cost that increases with age (called cost of insurance or COI).
2. Cash value: money that can earn interest based on an index (often the S&P 500) using formulas with caps, participation rates, spreads, and sometimes multipliers.

You don’t actually own the index. You’re getting a crediting formula. In years when the index is down, many IULs credit a floor like 0%. That “zero floor” line is a popular sales hook. What you’re rarely told: policy charges still come out every month—even when your credit is 0%. In flat or down periods, cash value can slide backward while you’re getting older… and the insurance costs are marching up.

The headline promises—and the fine print behind them

“Upside potential with no market losses”

• What’s true: You won’t see a negative index credit during the floor years.
• What’s missing: You’re limited by caps (e.g., 8%–10%) or participation rates (maybe 50%–100% of the index gain). Some years the index runs 18% and you only get 8% due to the cap. Over time, that drag is real. Caps and participation can be changed by the insurer.

“Tax-free retirement income”

• What’s true: You can borrow against cash value and, when done carefully, loans aren’t taxed.
• What’s missing: Heavy loans can push the policy toward lapse late in life. If it lapses with loans outstanding, the IRS can treat the gain as taxable in the year of lapse. That surprise tax bill in your 70s or 80s is the nightmare scenario. Many people were never warned about it.

“Flexible premiums”

• What’s true: You can adjust payments.
• What’s missing: Pay too little for too long and the cash value can’t carry the rising insurance charges. Flexibility works both ways—great when you overfund early, dangerous when you underfund.

The moving parts most people never see

• COI (cost of insurance): debited monthly and increases as you age.
• Policy/administrative charges: flat fees and per-$1,000 charges.
• Premium load: a percentage skim off each payment before it hits cash value.
• Cap/participation/spread multipliers: the dials that control how interest is credited. Insurers can change these on new segments.
• Surrender charges: a schedule that penalizes early exits (often 10–15 years).
• Loan mechanics: standard vs. indexed loans, variable loan rates, and how loans affect crediting.
• Secondary guarantees/no-lapse tests: specific funding rules you must meet to keep guarantees alive.

Any one item is manageable. Stack them together, and the policy demands ongoing attention and honest expectations.

A simple stress test example

Pitch: “Put in $500/month at age 35. At 6% average crediting, take $30k per year in retirement tax-free.”

Reality check:

• What if average credited interest over 30 years is 4% because caps get trimmed from 10% to 7% and a few flat years land at the 0% floor?
• Those 0% years still have charges, so cash value drifts down even before loans.
• At 65, if you start heavy loans and then hit a few low-credit years, the loan balance can snowball. Without careful management (and more premium), the policy can collapse.

I’ve reviewed many real-life policies where illustrations looked great at issue, then caps were adjusted and actual results landed below expectations. The clients weren’t wrong; they were under-informed.

Why I don’t sell IULs

1. Too many adjustable levers. Caps, participation, spreads, loan rates—these are not fixed for life. That adds uncertainty most families don’t want in their core protection plan.
2. Sequence risk still matters. Even with a 0% floor, several low-credit or zero years early on, plus rising costs, can stunt growth. The math counts just as much as the slogan.
3. Loan-driven retirement requires vigilance. Loans can work, but they’re not a set-and-forget income plan. You need periodic adjustments, especially in rough markets.
4. Real guarantees are often misunderstood. Some IULs have no-lapse features—but only if strict funding tests are met. Miss the test, lose the guarantee.
5. I prefer clear contracts you can explain at dinner. If it takes 45 minutes and 20 caveats to describe how your “retirement income” works, it’s probably not the best fit for most families.

When an IUL can make sense (rare, but honest answer)

• High earners who max out all qualified plans, maintain strong emergency reserves, can overfund the policy for years, and accept policy management as part of their financial routine.
• People who want flexible death benefit and are comfortable with the crediting mechanics and costs after thorough stress testing.

If that’s you, you probably already have a financial team and spreadsheets. For everyone else, simpler tools usually win.

What I recommend instead for most families

1) Start with the risk you can’t replace: your income

Buy level term sized to your goals: income replacement, mortgage, kids, and a buffer for final expenses. Pick a term length that actually covers the years you need, not just the cheapest option on the screen. If your mortgage ends in 27 years, let’s look at 25–30 years so you’re not forced into an expensive replacement later.

2) Consider a small permanent base if lifetime coverage matters

If you want something that never expires—final expenses, a modest legacy, or coverage for a lifelong dependent—a whole life or guaranteed universal life (GUL) policy with transparent guarantees can fit. You’ll know the premium and the guaranteed benefit. Fewer surprises.

3) Keep investing simple and separate

Use retirement accounts first (401(k)/403(b)/IRA), then taxable brokerage if you still have capacity. You’ll have clearer control over fees, fund choices, and rebalancing. Your life insurance stays insurance. Your investments stay investments.

4) Re-shop when life changes

New baby, new house, better health, debt paid down—we adjust the plan. If your health improves, we can ask your carrier for a reconsideration to try for a better class.

How to evaluate an IUL pitch in 10 minutes

If you’re still considering one, use this checklist:

1. Ask for three illustrations: current assumptions, a “modest” scenario (for example, 4%–5% crediting), and the guaranteed minimum.
2. Find the expense pages: premium load, admin fees, per-$1,000 charges, and COI tables.
3. Ask for cap and participation history for that product line over the last 10 years.
4. Loan details: fixed or variable? What’s the rate? How do loans affect crediting?
5. Surrender schedule: how long and how steep?
6. No-lapse rules: exactly what premium and timing keep the guarantee alive?
7. Stress test the income plan: show withdrawal/loan years after several 0% or low-credit years.
8. Exit plan: what happens if you stop funding for 12–24 months?
9. Alternatives: side-by-side with term + Roth/401(k) and, if lifetime coverage matters, whole life or GUL.

If the answers are fuzzy or the agent resists showing these pages, that tells you everything.

Common myths—translated

• “Zero is your hero.” A 0% credit in a down year still loses ground because charges continue.
• “The policy pays for itself.” Only if performance exceeds expenses consistently and funding was strong. That line is marketing, not math.
• “Tax-free retirement, guaranteed.” Loans are not income; they are loans. They require monitoring so the policy doesn’t implode.
• “Index performance equals your performance.” You don’t get dividends, and caps/participation clip returns. Your result is the index after the formula and after charges.

What working with me looks like

1. Short conversation. Goals, budget, a few health details.
2. Targeted carrier shopping. I look for companies that like your profile—build, meds, nicotine history, family history, driving, and any avocations.
3. Clear options. Term lengths tied to your timeline, with the monthly number for each. If lifetime coverage matters, we add a small permanent layer and show the trade-offs in dollars.
4. Transparent paperwork. You see guarantees next to non-guaranteed figures. For cash-value options, you get the expense pages—no mystery charges.
5. Post-issue support. Annual check-ins, beneficiary updates, and a plan to re-shop or convert if your life changes.

You won’t be pushed into a product that needs a spreadsheet to sleep at night.

Bottom line

IULs are clever. They are also complex. Most families want a policy that protects income, wipes out debt if life goes sideways, and doesn’t require babysitting. That’s why I lead with term, add a simple permanent layer when it fits, and keep investing separate. If someone pitched you an IUL and you’re not 100% sure how it wins in good years, survives flat years, and behaves when you start loans—pause. Let’s run the numbers side by side and pick the plan that you’ll feel good about in year one and year twenty.

Send me your age, state, coverage goal, budget, and any health notes. I’ll reply with a clear plan and real numbers—so you can protect your family with confidence.