What an indexed universal life insurance policy is

An IUL is permanent life insurance with a death benefit and cash value that earns interest tied to a stock index. You pay premiums; the insurer takes charges; what’s left builds cash value.

How the cash value gets credited

Your money isn’t invested in the index. The insurer credits interest using cap, participation rate, and floor (commonly 0%). Example: 10% cap, index up 14% → credited 10%; index down 20% → credited 0%, but charges still reduce cash value. Caps can change.

How IUL retirement income actually gets paid

You often borrow against cash value. Loans are generally not counted as taxable income while the policy stays in force, but interest accrues and unpaid loans reduce the death benefit. If loans outgrow cash value and the policy lapses, gain over premiums can be taxed at once — often in your 80s.

The funding part nobody mentions first

Sound designs assume premiums for roughly 10–15 years or more. Max funding adds premium relative to death benefit; over-funding can create a MEC and remove favorable loan treatment. Skipping premiums can collapse a thin design.

Where an IUL helps and where it doesn’t

In favor: tax-deferred cash value, possible tax-advantaged loans, no RMDs, 0% credited floor. Against: front-loaded charges, illustrations vs. reality, long funding commitment, changing caps, complexity, lapse risk if loans run ahead of cash value.

Often fits: match captured, Roth/401(k)/HSA used, long premium commitment, real need for insurance. Often doesn’t fit: no emergency fund, high-interest debt, or primary goal of market-like returns.