One of the biggest misconceptions about Indexed Universal Life (IUL) insurance is that all your money goes straight into your cash value.
It doesn’t.
Every policy has internal charges that reduce how much of your premium actually gets invested. These fees aren’t necessarily a bad thing — they’re part of how the policy works — but you need to know what they are.
That’s what this guide is for.
We’ll walk through the key expenses built into most IUL policies so you can understand where your money goes and what to watch out for — especially if you already have a policy or are thinking of getting one.
1. Premium Charges (Also Called Load Fees)
This is the first deduction taken from every premium payment you make.
In year 1: 9% is taken off the top
From year 2 onward: 5% is deducted each year
So if you contribute $10,000 in year one, only $9,100 goes into the policy after the premium charge.
This fee helps the insurance company cover upfront administrative and setup costs.
Note: These percentages vary by company. Some charge more, some less.
2. Policy Fee (Administrative Fee)
Think of this as the maintenance fee to keep your policy active.
In this example, it’s $90 per year, and it remains the same throughout the life of the policy.
It’s not a huge fee — but over several decades, it adds up. This is typically a flat charge, and most companies include it.
3. Per-Unit Charge
This is one of the most impactful — and often overlooked — expenses.
The per-unit charge is how the insurance company recovers upfront costs, such as:
Agent commissions
Underwriting expenses
Policy setup fees
It’s based on the amount of base insurance in your policy.
That means:
More base insurance = higher per-unit charge
Less base insurance = lower per-unit charge
This is why many advisors recommend using blended term insurance — it helps lower this cost significantly by minimizing the base insurance.
Let’s look at how this plays out across three different policy designs:
| Design | Per-Unit Charge |
| Design 1 (Traditional) | $3,019/year |
| Design 2 (Better, but not optimal) | $1,389/year |
| Design 3 (Optimized) | $479/year |
In this policy, the per-unit charge is applied annually for the first 15 years, after which it drops off completely.
That difference adds up quickly over time – and has a major impact on your cash value growth.
4. Cost of Insurance (COI)
This is the core cost of the life insurance protection in your policy. It pays for the actual death benefit.
Your COI depends on three main factors:
Your age
Your health rating
The total amount of insurance you’re carrying
This charge increases over time, which is expected. But if your policy is designed poorly — with too much base insurance or the wrong death benefit option — these costs can eat into your cash value faster than you think.
5. Rider Charges
Riders are optional add-ons to your policy that provide extra benefits. Common examples include:
Chronic illness coverage
Overloan protection
Blended term insurance
In many optimized policies, you’ll see small rider charges because they’re using blended term insurance. While the term “rider” might sound like an extra cost, in this case, it actually reduces overall expenses and improves policy efficiency.
The key is to focus on the total effect, not just the label.
6. Other Fees You Might See
Depending on your policy and the insurance company, you may also see:
Accumulation Value Charge
A small percentage deducted from your growing cash value
The higher your balance, the more this adds up
Common in policies with high early cash value growth
Asset Charges with Bonuses
Some index strategies include a 1% fee in exchange for a bonus credit (e.g., a multiplier)
These fees are charged even in years when your policy doesn’t grow
Not all policies include this — and it should be explained clearly if they do
These extra charges can either help or hurt your long-term performance depending on how your policy is designed.
Comparing the 3 Policy Designs Side-by-Side
Let’s recap how different structures affect fees:
| Feature | Design 1 (Traditional) | Design 2 (Okay) | Design 3 (Optimized) |
| Death Benefit Type | Level | Increasing | Increasing |
| Base Insurance | High | Moderate | Low |
| Blended Term Insurance | No | No | Yes |
| Premium/Admin Charges | Same | Same | Same |
| Per-Unit Charges | Highest | Medium | Lowest |
| Cash Value Growth | Lowest | Moderate | Highest |
| Agent Commission | Highest | Moderate | Lowest |
As you can see, Design 3 is the most efficient. It’s built with the client in mind — not the agent’s commission.
Final Thoughts
The biggest lesson here is simple:
Fees matter.
They don’t just determine how much of your money goes to work — they also reflect how your policy was designed. And unfortunately, many agents don’t structure IULs in a way that minimizes fees and maximizes long-term performance.
If you’re unsure how your policy was built — or if you haven’t seen your expense breakdown — I strongly recommend reviewing it before continuing.
A properly designed IUL can be a powerful long-term tool. A poorly designed one can drain your money for years without delivering the results you hoped for.
If you want a second opinion on your policy or want to see how a better design could look, I’d be happy to help — no pressure, just clarity.
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