What is the Average Return on an Indexed Universal Life Insurance (IUL) Policy?

Indexed Universal Life Insurance (IUL) policies offer policyholders the opportunity to accumulate cash value while providing a death benefit. One common question among individuals considering an IUL policy is what the average return on investment might be.

In this article, we will explore the factors that influence the average return on an IUL policy and provide insights to help potential policyholders make informed decisions.

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Table of Content
1. Summary
2. Factors That Influence The average Return on an Indexed Universal Life Insurance (IUL) Policy
i. Performance
ii. Crediting Method
iii. Premium Contributions
iv. Policy Expenses
v. Policyholder’s Risk Tolerance
3. Note this tip
4. Conclusion
5. FAQs


The average return on an IUL policy varies based on several factors, including the performance of the chosen index, the policy’s crediting method, and the policyholder’s premium contributions.

IUL policies do not provide a guaranteed rate of return, and the actual return can fluctuate depending on market conditions and policy specifics.

The potential for higher returns in an IUL policy comes with a trade-off of potential downside risk, as the policy’s cash value is linked to the performance of the chosen index.

Policyholders can choose from various index options, such as the S&P 500 or other market benchmarks, each with its own historical performance and growth potential.

Factors That Influence The average Return on an Indexed Universal Life Insurance (IUL) Policy

The average return on an IUL policy is influenced by the following factors:

  • Index Performance: The average return on an IUL policy is closely tied to the performance of the chosen index. Different indexes have varying historical performance, and the returns can be influenced by market conditions and economic factors.
  • Crediting Method: IUL policies offer different crediting methods, such as annual point-to-point, monthly averaging, or cap-and-participation rate combinations. Each method has its own impact on the potential returns of the policy.
  • Premium Contributions: The amount and frequency of premium contributions made by the policyholder can also affect the average return. Higher premium contributions can result in faster cash value accumulation and potentially higher returns over time.
  • Policy Expenses: IUL policies have various fees and expenses, such as administrative costs, mortality charges, and policy fees. These expenses can impact the net return on the policy.
  • Policyholder’s Risk Tolerance: The average return on an IUL policy is influenced by the policyholder’s risk tolerance. IUL policies offer the potential for higher returns, but they also come with the risk of market downturns. Policyholders should carefully consider their risk tolerance and investment objectives when evaluating the average return potential.

Note this tip

Policyholders can request illustrations from their insurance agent or company, which provide projections of the policy’s potential returns based on certain assumptions. These illustrations can give policyholders an idea of the average return potential, although they should be used as estimates and not guarantees.


The average return on an indexed universal life insurance (IUL) policy is influenced by multiple factors, including index performance, crediting methods, premium contributions, policy expenses, and the policyholder’s risk tolerance.

It is important for potential policyholders to thoroughly understand these factors and carefully evaluate their own financial goals and risk tolerance when considering an IUL policy.

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1. How Does an IUL Policy Work?

An IUL policy works similarly to a traditional Universal Life policy, with the policyholder paying a fixed premium in exchange for death benefit protection for a set amount of time.

The policy also provides the option of cash value accumulation based on an underlying investment index, such as the S&P 500. Policyholders are able to withdraw money from the policy as needed, although doing so can have tax implications.

2. What is the Average Return on an IUL Policy?
The average return on an IUL policy depends on a variety of factors including the size of the premium, the type of underlying index, and how long the policy has been in effect, among other factors. Generally speaking, the average return for an IUL policy is around 4-6%.

3. How does an IUL make money?
IUL make money in a variety of ways, primarily through Guaranteed Minimum Interest Rate and through Participation Rate and Index Performance. You can read more about how an IUL makes money here

3. What is the Maximum Return on an IUL Policy?
The maximum return on an IUL policy depends on the underlying index chosen. Some indices may offer higher returns than others, particularly in volatile markets.

Generally, the maximum return for an IUL policy is around 8-10%. However, certain guarantees may be offered by the insurance company that could potentially yield higher returns.

4. Are There Other Cost Considerations with an IUL Policy?
Yes, there are other cost considerations with IUL policies that can affect your overall return. Surrender fees may be levied on funds withdrawn from the policy prior to the end of the term, and additional fees may be charged for policy maintenance and other services. It is important to read any policy documentation carefully before making a purchase.

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