An Indexed Universal Life (IUL) insurance policy is one of the most flexible and powerful financial tools available today. It offers death benefit protection, tax-advantaged cash value growth, and access to funds during your lifetime.
However, for an IUL to deliver its full potential, it must be carefully sustained over time. Poor management, neglect, or misunderstanding how it works can cause an IUL to underperform — or even lapse. Sustaining an IUL properly requires a proactive, informed approach so that it can continue serving you for decades as both protection and a wealth-building vehicle.
Summary
To keep an IUL policy strong and thriving, it is important to fund it properly, monitor it regularly, and manage it intentionally. Owners must prioritize early and sufficient contributions, understand how loans and interest affect the policy, and adjust over time based on market conditions and personal goals. Working closely with a knowledgeable advisor, reviewing performance annually, and having a clear long-term vision for both death benefit and cash accumulation will ensure the policy stays healthy, efficient, and powerful across different life stages.
Prioritize Overfunding in the Early Years
An IUL thrives when it is funded aggressively in the beginning. By contributing well above the minimum premium requirements early on (without creating a Modified Endowment Contract, or MEC), you build a strong cash value base.
This early foundation allows the policy to better absorb future fluctuations in interest crediting, policy charges, or loan activity — ultimately making it more self-sustaining over time.
Monitor Your Cash Value Growth Annually
Your IUL’s performance is tied to external market indices (like the S&P 500), subject to caps and participation rates. Therefore, cash value growth can vary year to year.
Review your policy’s annual statement carefully. Look for key indicators like credited interest, cost of insurance charges, and cash value accumulation.
Annual reviews allow you to spot any underperformance early and adjust strategies if needed — before minor issues become major problems.
Understand the Cost of Insurance (COI) Dynamics
As you age, the cost of insurance inside your IUL naturally increases. If the cash value isn’t strong enough to cover these rising charges, the policy could cannibalize itself and risk lapsing.
By proactively overfunding early and monitoring cash value levels, you help ensure that future insurance charges are easily covered without draining your policy.
Use Policy Loans Strategically, Not Carelessly
One of the biggest advantages of an IUL is the ability to borrow against cash value — but it must be done thoughtfully.
Policy loans accrue interest. If you borrow heavily without a plan for repayment, outstanding loan balances and compounding interest could erode the policy’s foundation.
Borrow for strategic purposes (like debt consolidation or investments), and consider repaying at least the loan interest annually to prevent balances from spiraling.
Manage Loans Carefully to Avoid Policy Collapse
If policy loans plus accrued interest grow too large relative to the remaining cash value, the policy risks collapsing.
A lapsed policy not only ends your death benefit protection but may also trigger a taxable event on the gains.
Set a personal rule — for example, never let loans exceed 40%–50% of the available cash value — and stick to regular loan check-ins with your advisor.
Adjust Contributions Over Time as Needed
Life circumstances change, and so do financial priorities.
If you experience major life changes (career shifts, business expansion, retirement plans), revisit your IUL funding strategy.
You may need to increase contributions temporarily to protect against slower market years or to catch up if earlier funding was lighter than ideal. Flexibility is a strength — use it wisely.
Understand Index Crediting and Policy Mechanics
IULs are not fixed investments; they are tied to external indices and subject to floors (usually 0%) and caps (limits on credited gains).
Understanding how these mechanics work — including participation rates, caps, and spreads — helps set realistic expectations and prevents panic during years when crediting might be modest.
Knowledge empowers patience, and patience sustains policies.
Plan for a Shift Toward Preservation Later in Life
An IUL’s role can evolve over time.
Early in life, you might prioritize aggressive cash value growth. Later in life — especially in retirement — you might shift to preservation and controlled withdrawals.
Working with your advisor, you can create a withdrawal strategy (using loans or partial surrenders) that supports your retirement income needs while keeping the policy intact and healthy for longer.
Work Closely with an Experienced Advisor for Policy Reviews
Self-managing an IUL without professional guidance is risky.
A seasoned advisor can help you track the policy’s in-force illustrations, recalibrate funding strategies, adjust for changes in index crediting, and advise on loan strategies.
Regular professional reviews ensure that you stay ahead of potential issues rather than reacting to them after damage is done.
You can book a free strategy session with us at Seventi102 Life. We will be glad to be of assistance and help you navigate the intricacies of IUL to tailor it to your specific needs and avoid mistakes that might make the venture unprofitable.
Stay Committed to a Long-Term Vision
An IUL is not a get-rich-quick product. It is a long-term financial tool designed to grow, protect, and provide flexibility over decades.
Commit to the vision of sustained funding, intelligent borrowing, and strategic management. Those who stay consistent, patient, and proactive are the ones who reap the full power of what an IUL can offer — tax-free growth, tax-free access, and a lasting legacy.
Conclusion
Sustaining an Indexed Universal Life (IUL) policy is a deliberate, rewarding process. It is about funding wisely, monitoring consistently, managing loans responsibly, and adjusting your strategy as your life evolves.
With the right attention, knowledge, and support, your IUL can be more than just an insurance policy — it can become a lifelong financial ally, offering protection, flexibility, and tax-advantaged growth for every chapter of your journey.
When managed correctly, an IUL doesn’t just protect your family — it empowers your future.
IULs have a lot of features that can potentially provide a safety net for you and for your loved ones. You should check out this video on how to safeguard your future and that of your loved ones against unforseen circumstances like job loss or illnesses.
FAQs
Question 1: Why is overfunding my IUL policy important in the early years?
Answer: Overfunding early in the policy’s life helps build a strong cash value foundation, which can absorb future increases in the cost of insurance and market fluctuations.
This gives your policy greater stability, enhances its ability to self-sustain, and maximizes the benefits available later for loans, withdrawals, or retirement income.
Question 2: What happens if I take too many loans from my IUL policy?
Answer: Taking excessive loans without managing them properly can significantly weaken your policy’s cash value.
If loans and accrued interest grow too large relative to the remaining cash value, the policy could lapse, triggering tax consequences and ending your death benefit protection.
Careful loan management — including possible repayments — is critical to maintaining policy health.
Question 3: How often should I review my IUL policy?
Answer: You should review your IUL policy at least once a year with a knowledgeable financial advisor.
Annual reviews allow you to track growth, ensure proper funding, adjust loan strategies, and make any needed corrections before small issues develop into serious problems.
Question 4: Can my IUL policy still perform well during poor market years?
Answer: Yes. One of the advantages of an IUL is that it typically has a 0% floor, meaning you won’t lose cash value due to negative market returns.
However, you may still see slower growth during down years, making it even more important to have a strong funding base and a long-term perspective to ride out market cycles.
Question 5: Is it possible to adjust my funding strategy later in life?
Answer: Absolutely. Life circumstances and financial goals evolve over time, and your IUL should adjust accordingly.
You may choose to reduce premiums, shift toward preservation rather than growth, or create a structured withdrawal plan to access tax-advantaged income in retirement.
Flexibility is one of the key strengths of an IUL — when managed proactively.
We hope you gained much from this article. Our previous article was on policy duration and coverage in IUL. You can check it out as it contains a lot of valuable information.
After diving deeper into how IULs work, I realize that simply owning a policy isn’t enough. It requires active, informed management to truly benefit from its protection and cash value growth. I’m committing to better monitoring and funding practices to keep my IUL strong over the years. By staying proactive, I know I’ll maximize its value and secure both immediate protection and future financial opportunities for myself and my family.