What this shows — and what it doesn’t
Watch the two lines: in a down year the full-index line falls, while the IUL line flattens (the floor credits no loss). In a strong year the IUL line rises less (the cap clips it). Over a bumpy sequence, avoiding the down years can offset giving up some of the up years — that’s the trade IUL makes. This is the same sequence-of-returns idea that matters most near retirement, and one reason IUL appears in a tax-free bucket strategy.
What this demonstrator leaves out is exactly what makes a real policy a real policy: the cost of insurance, premium loads, and administrative fees (which reduce cash value, especially early), the fact that caps and participation rates can change over time, and the risk a policy lapses if underfunded. So treat this as a way to understand the mechanic — not as what any policy would actually do. For real numbers, you need a personalized, AG 49-A-compliant illustration from the insurer. See types of life insurance for where IUL fits.
Frequently asked questions
- What do the floor and cap mean?
- The floor (often 0%) means a down index year credits no loss; the cap limits how much of a strong year you receive. A participation rate can scale the index move before the cap and floor apply.
- Is this an IUL illustration?
- No — it’s an educational demonstrator of the crediting mechanic only. It ignores costs and fees and uses fixed illustrative returns, not a forecast. A real illustration is regulated (AG 49-A) and comes from the insurer.
- Does the floor make IUL risk-free?
- No. Policy costs can still reduce cash value, caps and participation rates can change, and a policy can lapse if underfunded. Downside protection on crediting is not the same as no risk.
Educational only; not financial, tax, or insurance advice, and not an insurance illustration or quote. Illustrative index returns shown are not a forecast and exclude all policy costs and fees.