An IUL Is Not an Investment — No Matter What Your Agent Tells You

IUL Truths

This article is probably going to piss your agent off. But that’s okay—because it’s Financial Literacy Month, and you deserve the truth.

What an IUL Is.

An Indexed Universal Life (IUL) insurance policy is not an investment account. Let’s be clear: just because it builds “cash value” doesn’t make it a substitute for your 401(k), IRA, or TSP. It’s not a stock market account. It’s not a retirement plan. It’s life insurance—with a savings feature attached. The purpose of an IUL is to give you access later in life to tax-advantaged cash that you can use for things like supplemental income or medical expenses. That’s it. And only if it's structured and funded properly.

Where Does Your Money Go in an IUL?

When you pay into an IUL policy, your money generally gets divided into three buckets:

1. Fees: Administrative charges and policy expenses

2. Insurance Costs (Premiums): These pay for the actual death benefit protection

3. Cash Value: This portion grows based on the performance of a selected index (like the S&P 500), but with a cap and a floor

In the early years of your policy, your cash value does begin to grow—especially if your policy is structured correctly and funded beyond the bare minimum. However, while the money is accumulating, you likely won’t be able to borrow from it immediately. Access to that cash value (via loans) usually becomes a realistic option after a few years, once the balance grows enough to offset internal fees and cost-of-insurance charges. You’re not losing your money—it’s growing tax-deferred. But the usable portion takes time to build up. And here's the real beauty: once you can borrow, you can use the money for anything you want—college, a car, a wedding, or even to invest in a business. The loan doesn’t show up on your credit, and in many cases, you don’t have to pay it back during your lifetime (as long as the policy is structured properly and the loan doesn’t exceed the cash value).

Here’s the Real Deal

If you can’t afford to overfund this type of policy—meaning putting in more than just the minimum premium to keep it alive—it’s probably not for you. These policies are most effective when max-funded based on the death benefit. When done correctly, they can provide:- Tax-free income via policy loans- Protection from market losses (your money doesn’t go down with the market)- Access to long-term care riders- Wealth transfer benefits for your kids or spouse- A living benefit if you become chronically or terminally ill but again, this is not for people living paycheck to paycheck. If that’s you, your priority should be term life insurance—specifically, term with living benefits (critical, chronic, terminal illness). These are affordable, offer solid coverage, and can protect you and your family when it matters most.

Beware of the “Better Policy” Pitch — It’s Probably a Scam

Let’s talk about one of the slimiest tricks in the life insurance world: You already have a policy—maybe even an IUL or a whole life plan you’ve paid into for years. Then some agent comes along and says: “Hey, I found a better one. Let’s cancel the old one and switch you over.”Big. Red. Flag. This tactic is called “churning,” and it’s not just unethical—it’s financially destructive. Here’s what happens when you fall for it:- You lose all or most of the money you’ve paid into your old policy- If there's any cash value, it's often just a small fraction of your total contributions- You start over at an older age, with higher premiums- You may face a coverage gap that leaves your family unprotected- Years of savings and planning get wiped out in one move best policy is usually the one you already have, especially if it’s been properly funded and structured from the start. Unless there’s a serious issue with your current plan, don’t cancel it just because someone says they can “do better.”

It Should Be Part of the Plan — Not the Whole Plan

And no—this is not your entire retirement plan. An IUL should be just one part of a well-rounded financial strategy that includes traditional retirement vehicles like 401(k)s, IRAs, pensions, and savings. Used properly, it can complement those accounts by giving you access to tax-free cash, legacy planning tools, and living benefits—especially during market downturns or in retirement healthcare situations.

Why Work With a Broker?

There are many companies offering IULs—and they’re not all built the same. Caps, fees, riders, and crediting strategies vary widely. Working with a licensed broker gives you the advantage of choice. I’m able to compare policies from multiple top-rated carriers and match you with the one that aligns with your goals, budget, and long-term strategy. This ensures you're not boxed into a cookie-cutter policy that wasn’t made for your unique situation.

Want to learn more or find out if this is right for you? Connect with a Broker below:

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