Indexed Universal Life (IUL) explained
Indexed Universal Life insurance, or IUL for short, is a valuable wealth creation tool for high net worth individuals. But what is it, and how should it be used? In this video, I break down something that wealthy individuals are using more and more as a powerful wealth building and protection tool.

You may think of life insurance as just a benefit for your loved ones, but IUL is a little bit different. It’s a flexible strategic tool that can provide growth, protect against market downturns, and provide extra wealth for your family, whilst also benefiting you during your lifetime. This is because it has an accessible cash value that can be used to generate income or even as collateral for a low-interest rate loan.

How IUL works
An Indexed Universal Life policy combines the protective features of life insurance with the growth potential of investing using a stock market index, such as the S&P 500, as a benchmark. With an IUL, you have a cash account linked to market returns. Some of the policy premium is used to buy life cover, and the rest captures upside potential linked to the stock market of your choice.

You don’t invest directly in the market, but your policy’s cash value is linked to the performance of the index. Think of it as getting the best of both worlds: you capture market growth, but you also have built-in protection if the market dips.

Downside protection and the 0% floor
For example, if the S&P 500 takes a big hit during a recession, an IUL strategy may have a floor of 0%, protecting you from those losses. As the market rises, you capture gains up to the annual limit, which typically sits around 9–10%. It’s essentially a safeguard, letting you sleep better at night knowing your money isn’t exposed to full market volatility.

Take the financial crisis of 2008. The S&P 500 lost about 38.5% that year. If you were directly invested, you would have needed a 62.6% gain just to get back to where you started. With an IUL and a 0% floor, your cash value would have stayed level throughout the downturn.

Sequential returns risk
For those getting close to retirement, IUL offers protection against what’s known as sequential returns risk. This is the risk of experiencing poor returns right before or in the early years of retirement, when you’re starting to rely on your savings for income. A major market loss just as you start withdrawing funds can mean you run out of income before you die.

With an IUL, because of that 0% floor, your cash value isn’t exposed to market declines in the same way. This means your retirement plans aren’t thrown off track.

Wealth transfer and legacy planning
An IUL is still, at its core, a life insurance policy, which means it includes a wealth creation benefit. Imagine accumulating wealth throughout your life and passing down a substantial amount to your family, potentially income tax-free. That’s a powerful tool for legacy building.

An IUL doesn’t just grow wealth for you, but it can also be a vital part of a generational wealth strategy, giving your family financial security after you’ve gone.

Income and liquidity
Another great feature is the flexibility IUL offers to generate income when you need it. As your cash value grows, you can start accessing it to provide steady income. Many high net worth individuals use this cash value for supplementary retirement income or to fund a new business venture.

IUL policies can also facilitate loans secured against the cash value. Unlike traditional loans, you don’t need to go through a bank or affect your credit score. Loans taken against the policy can be tax-free, and interest rates are usually lower than traditional lending facilities.

Summary
To recap, Indexed Universal Life insurance can provide protection against market downturns, shield your investments from sequential returns risk, create wealth for future generations, and give you flexibility for income and loans.

For high net worth individuals looking for a blend of protection, growth, and legacy building potential, an IUL is definitely worth exploring. If this sounds like something that could help you reach your financial goals, please get in touch for some bespoke advice to see if an IUL is right for you.

Thanks for watching, and as always, stay smart and strategic with your finances.