IUL comparison: Mastering the basics

Indexed universal life products have gained momentum in the life insurance industry for good reason. With built-in flexible premiums, tax-advantaged and tax-free growth potential, and design flexibility, IULs can serve both protection and accumulation goals, making them a legitimate go-to consideration for a wide range of clients.

But for insurance agents and agency owners, comparing IUL products isn’t always straightforward. Different carriers, index options, fee structures, and illustrated benefits can make the process feel overwhelming, especially for a licensed insurance agent without the right support.

Let’s lay the foundation for you to properly understand IUL comparisons and the areas you must master in front of customers. In follow-up articles, we’ll walk through real-life IUL product examples based on current market rates and carrier-specific features, all the while referring back to the concepts shared here.

Why the right FMO matters more than ever

Let’s start with the topic of support. It’s the first item you must have in place if you’re going to learn the ins and outs of IUL comparisons.

However, let’s address one truth: Underwritten life insurance products, whether or not they require a medical exam, require a level of case design and follow-through that most agents can't or shouldn’t tackle alone, especially if they are still new to selling IULs or any type of underwritten policy, such as term life insurance or cash value life insurance.

That’s why your relationship with your field marketing organization matters more than just compensation. Look for an FMO with experienced internal wholesalers who can craft and adjust an IUL policy illustration that matches the client’s financial goals and can adapt to market changes.

Beyond that, strong case management support is essential. After an application is submitted, things often change. The right team can help you navigate underwriting challenges, follow up with life insurance companies and ensure applications don’t get lost in no man’s land.

The right FMO is your back office to lean on for life insurance products, especially when you’re building IUL into your practice.

Understanding IUL products

At its core, IUL is a type of permanent life insurance that includes a policy cash value component. That cash value grows based on the performance of a market index (like the S&P 500), subject to caps, floors, and participation rates.

Unlike traditional whole life insurance, IULs give your clients flexibility in premium payments and how much life insurance coverage they want. But with flexibility comes complexity, and that’s where a well-designed comparison becomes a valuable component of your IUL presentations.

5 key factors to consider when comparing IULs

1. Carrier strength

Not all carriers are created equal. IUL products are long-term vehicles, and your client’s financial future depends on the strength and stability of the insurance company behind the policy.

Look for carriers with strong AM Best ratings and a track record of supporting their policyholders during both bull and bear markets, especially during market volatility and market downturns.

Action step: Financial strength rating serves as a trust signal for both you and your client, and it’s important to point out and discuss when you are comparing IULs with your prospects.

2. Caps, floors and participation rates

The engine behind an IUL’s cash value accumulation lies in three levers.

• Cap: The maximum interest credited during an indexing period.
• Floor: The minimum interest (typically 0% or 1%), protecting against market losses.
• Participation rate: How much of the index’s return is credited to the policy.

It’s not only about the headline numbers. Renewal rate history and carrier discretion matter just as much. A product might illustrate beautifully today, but if the carrier has a pattern of reducing participation rates or caps, future policy performance could suffer.

Action step: Always discuss with your wholesalers (FMO or internally at the carrier) how rates have changed over time. Don’t chase an attractive cap without understanding the carrier’s behavior.

3. Administrative and mortality costs

All IULs have internal costs. These typically include:

• Fixed charges: Monthly policy fees or premium loads.
• Variable charges: Mortality and expense charges, often tied to the net amount at risk.
• Cost of insurance: COI can fluctuate and is impacted by age, health and carrier pricing strategies.

Some carriers build in higher fees up front or maintain flexible charges that can increase later, so it’s critical to understand what’s guaranteed and what isn’t, especially to avoid the potential for a modified endowment contract scenario.

Action step: A lower-fee policy can outperform in the long run, even with a modest cap or participation rate. Cost structure matters just as much as upside, so this is an area you must understand or address with your wholesaler prior to presenting to your prospect.

4. Index options

Most IULs offer multiple index options such as the S&P 500, Russell 2000, NASDAQ or even custom blends. These options carry different volatility, return potential and costs.

Some products also offer volatility-controlled indices, which adjust exposure to equities in real time. These often come with higher caps or bonuses but may limit growth in bull markets.

Action step: Match the index to your client’s risk tolerance and goals. And be sure to explain how each index is constructed. Your credibility goes up when you can articulate the “why” behind the option. This is an expectation when dealing with higher-value clients or estate planning discussions.

5. Riders, bonuses and multipliers

From living benefits such as chronic illness riders to multipliers and interest bonuses, many IULs offer bells and whistles that can enhance performance or add flexibility.

But complexity is the tradeoff. Some riders are baked into the cost, while others are optional with additional fees. Bonuses and multipliers often come with moving parts or performance triggers that aren’t always guaranteed.

Action Step: Focus on the core solution of the IUL and don’t get distracted by illustration sizzle. Prioritize riders that align with the client’s long-term needs and avoid overselling hypothetical gains that may never impact their retirement income or beneficiaries.

What most agents miss

Here are a few often-overlooked areas that separate good IUL producers from great ones.

• Client fit: Believe it or not, not every client needs an IUL. Be sure the client is comfortable with some variability in return and understands the long-term nature of the product as well as the pros, cons and alternatives such as annuities or Roth IRA strategies.
• Long-term performance > illustration: Initial interest rates and bonuses might look great, but it’s the carrier’s renewal history and policy mechanics that drive real value.
• Liquidity and exit strategy: Some policies have surrender charges that limit flexibility for years. Educate clients on policy loans, distributions and withdrawal options so they know when they’ll truly have access to their funds.

Mastering IUL comparisons is about setting the right foundation

The best IUL isn’t the one with the highest cap or the most bells and whistles. It’s the one that aligns with your client’s needs, performs consistently over time, and is backed by a carrier you trust, paired with a support team that helps you sell it right, every time.

In this series, we will dissect actual IUL products, showing you side-by-side comparisons and case design insights.

But remember: Your FMO or internal wholesaler is your leverage. The right one will equip you with product and illustration expertise, case management firepower and the strategic guidance to grow your business without taking on all the risk yourself.

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Brian Kunkel, JD, CMFC, CRPS, RICP, is the head of the Product & Advanced Strategies team at TruChoice Financial Group. Contact him at [email protected].