Most people who buy an Indexed Universal Life (IUL) policy never fully understand the illustration.
And honestly? That’s not their fault.
Many agents rush the process, skip the explanation, and leave clients confused. But if you don’t understand the illustration, you don’t truly know what you’re signing up for.
That’s why this post is so important.
In the next few minutes, you’ll learn how to read an IUL illustration, what the key sections mean, and how to avoid common mistakes that could cost you down the road.
What Is an IUL Illustration?
An IUL illustration is not a guarantee.
It’s a projection — a best guess of how your policy could perform over time based on:
Assumed interest rates
Premium payments
Internal policy charges
It’s meant to show what could happen — not what will happen. And it should be provided before you move forward with a policy.
Every Company’s Layout Is Different
Some illustrations are easy to follow. Others look like spreadsheets from another planet.
But don’t worry — the structure may change, but the core sections are pretty consistent. Here’s what to look for.
Section 1: The Policy Overview Page
This is your snapshot summary. Review this page to confirm the basics:
Your name, age, and health rating
Initial death benefit amount
Death benefit option:
Level: traditional, but less cash value
Increasing: better for building cash value
Planned premium (e.g., $500/month or $15,000/year)
Riders (like chronic illness protection or overloan protection)
The index selected (how your policy earns interest)
Make sure all of this matches what your agent discussed with you. If something seems off, ask.
Section 2: Guaranteed vs. Non-Guaranteed Projections
This is where people often get overwhelmed. But once you know what to look for, it’s pretty straightforward.
Guaranteed Scenario
Assumes little to no growth and maximum policy charges
It’s a worst-case scenario
Not likely to happen, but useful to understand the downside
Non-Guaranteed Scenario
Assumes a fixed interest rate — 6% used in this example
Shows how the policy could grow under more optimistic conditions
This is the number most agents talk about
But remember: this is just a scenario. Real-world performance depends on the market, how the index performs, and changes in your policy over time.
Important columns to know:
Age – shows your age at each policy year
Annual Premium – how much you’re putting in
Accumulation Value – total internal cash value
Surrender Value – what you could actually access or receive if you cancel
Early on, this is usually much lower due to surrender charges
The gap narrows over time and usually disappears after 9–15 years
Tip:
Be cautious with overly optimistic growth assumptions. If your illustration assumes more than 6%, ask why. A 5–6% assumption is usually more conservative and realistic.
Section 3: The Expense Breakdown
This section shows the real internal costs of your policy. It includes:
Premium expense charges
Cost of insurance (which rises over time)
Admin fees
Per-unit charges
Rider fees (if any)
If this page is missing — that’s a red flag.
Some agents intentionally remove it. But this is one of the most important pages in the whole document.
Without it, you won’t know what you’re actually paying.
If you’re not sure how to read this part, a trusted advisor can help break it down for you.
Section 4: Interest Crediting Strategy
This section shows the index options available in your policy, how they work, and what returns you might expect.
Look for:
Cap rates – the maximum interest you can earn in a year
Participation rates – the percentage of index growth you’ll receive
Spreads – a fee subtracted from the return before it’s credited
Bonuses – additional interest added depending on performance
Examples:
S&P 500 Strategy:
Cap = 12.25%, Participation = 100%
If the index grows 10%, you get all 10%
If the index grows 15%, you’re capped at 12.25%
PIMCO Strategy:
Participation = 185%, plus a 1% bonus
If the index grows 5%, your credit is 5 × 1.85 = 9.25% + 1% = 10.25%
Strategies with Multipliers:
May show high returns, but also charge asset fees (e.g., 1%)
That fee applies even in down years — so be cautious
Fixed Account:
Usually offers a consistent rate (e.g., 5.4%) with no risk
Each company offers different strategies. Your agent should help you choose based on your goals and risk tolerance.
Section 5: Loan Options
This part outlines the types of loans you can take against your policy and their terms.
Typical loan types:
Fixed Loan:
May have a changing rate based on how long the policy has been active
Your cash value doesn’t earn interest while borrowed
Indexed Loan:
Fixed loan rate (e.g., 5%)
Your cash value can still earn based on the index even while you borrow
We’ll go deeper into loans in another article, but this section gives you a preview of how they work and what they cost.
Final Thoughts: Understanding = Control
When you know how to read your IUL illustration, you’re not just trusting someone else’s explanation — you’re empowered to make smart, informed decisions.
You now understand:
What assumptions go into your projections
How your cash value and surrender value behave
Where to find your actual costs
How your policy earns interest
What your loan options are
And remember: every company lays out illustrations differently — but the core ideas stay the same.
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