What to know about market‑linked life insurance strategies

In a moment defined by market turbulence and rising uncertainty, more Americans are looking for financial solutions that offer both protection from market volatility and meaningful long-term growth potential. In fact, a recent Lincoln Financial study found that 67% of consumers want an equal mix of growth and protection when choosing an investment or an insurance product.

Indexed universal life insurance has steadily expanded its market share over the past decade as a response, with LIMRA reporting IUL new premium topping 25% of total U.S. life insurance sales in the first three quarters of 2025. Much of that growth is driven by the appeal of linking policy performance to market indexes, while maintaining downside protection. 

But as the number of index designs grows — from traditional equity benchmarks to sophisticated, rules‑based volatility‑controlled indexes — it’s become increasingly clear that not all indexes are created equal. And not all of them are equally transparent or easy to understand.

The landscape has shifted — and so have index designs

Most people understand the basic idea of linking performance to a familiar benchmark such as the S&P 500. But in recent years, index designs have introduced new methodologies aimed at addressing a central challenge in modern markets: managing volatility.

Rather than relying solely on traditional equity indexes, many carriers now offer access to rules‑based indexes designed to maintain a more stable level of volatility over time. These “volatility‑controlled” or “risk‑managed” indexes monitor market conditions and adjust the allocation between growth and stability‑focused asset classes to help reduce extreme swings.

But these indexes can vary widely in their volatility targets, how frequently they rebalance, the composition of their underlying asset mix and the growth caps or participation mechanics that determine how returns are credited. This variability means performance can differ widely depending on the index they select, even when two indexes share similar names.

Understanding the structure is more important than the label

As more proprietary and volatility‑controlled indexes enter the market, it’s becoming increasingly important to look past the name of an index and understand how it’s built. Two indexes may sound similar yet behave differently depending on their underlying components and how they respond to market conditions.

One challenge is that some index designs don’t make their methodology or asset mix immediately clear. When the underlying basket is hard to see or relies on complex rules, it becomes difficult for clients — and sometimes even advisors — to understand what drives performance. That can create gaps between expectations and outcomes.

This is where transparency becomes especially valuable. Indexes with clear, easy‑to‑follow structures, whether they use broad equity benchmarks, cash or straightforward rules‑based adjustments, make it easier to explain how returns are generated. Even simple distinctions, such as whether an index leans heavily on dividend‑focused stocks or includes a rotating mix of asset classes, can have meaningful implications for how it performs relative to the broader market.

Ultimately, the goal isn’t to favor one type of index over another; it’s to ensure that both advisors and policyholders understand what’s inside the index and how its design may influence long‑term results.

For financial professionals, the key is to know how the index is built:

» What is the target volatility?

» How often does the index rebalance?

» How transparent is the methodology?

» Is the underlying market exposure understandable to the client?

» How do caps, spreads or participation rates interact with the index design?

These questions are especially important given the recent proliferation of proprietary indexes in the market. When clients know what drives an index, they’re better equipped to choose a strategy that aligns with their goals.

Volatility control isn’t about limiting growth

One common misconception is that volatility‑controlled indexes dampen performance in a way that disadvantages policyholders. In reality, these indexes aren’t designed to outperform equity markets outright. Instead, they’re designed to provide more consistent, less erratic performance, which can create more predictable crediting outcomes inside an IUL chassis.

But why does volatility matter so much inside an IUL?

Because policy performance is influenced not just by average returns but also by the sequence of those returns. Extreme market drops can disrupt long‑term policy values, especially for consumers relying on IUL as a supplemental retirement asset or a long‑term accumulation tool. Indexes that target steadier volatility can help moderate those swings. In other words, volatility-
controlled indexes attempt to balance participation in market opportunity with protection against the kind of turbulence that can disrupt long-term planning.

Advisors often ask how carriers maintain stability in caps and participation rates over long periods, and one factor is that volatility‑controlled indices generally produce more stable option pricing than traditional designs do. That stability can help support more consistent crediting outcomes over time, even as markets move through periods of heightened volatility.

Index choice matters more than ever

As the life insurance industry evolves, index options will continue to expand and diversify. This represents an opportunity. A broader set of index choices means more ways to customize a policy to match risk tolerance, growth expectations and time horizon.

For financial professionals, it underscores the industry’s responsibility to ensure clients understand the mechanics behind the indexes they select and to guide clients toward options that align with their expectations and risk level. 

Not all indexes are created equal. And in a rapidly changing market, that’s a good thing because it gives consumers the flexibility to choose the strategy that best fits their goals, their timeline and their comfort with uncertainty. 

Darrel Tedrow is president of retail life solutions at Lincoln Financial Group. Contact him at [email protected].