A lot of confusion about Indexed Universal Life (IUL) insurance doesn’t come from the product itself.
It comes from how it’s explained — or misexplained.
So let’s walk through the most common IUL myths, and what’s actually true.
Misconception #1: “IULs are only for the wealthy”
The truth:
You don’t need to be rich to benefit from an IUL.
Yes, high-income earners often use them for tax planning, but if you’re a disciplined saver, putting away even $300 to $500 a month in an IUL can still make sense if it meets your need.
It’s not about how much you make.
It’s about what you want your money to do:
Protect your family
Grow tax-free
Stay flexible and accessible
Misconception #2: “You only get the death benefit — the insurance company keeps your cash value”
The truth:
That’s only true with Level Death Benefit designs.
If your policy is set up with an Increasing Death Benefit, your growing cash value is included in the death benefit payout. It’s not kept by the insurance company — it’s paid out to your family.
The key is choosing the right design.
Misconception #3: “IULs are too expensive”
The truth:
Compared to term insurance, IULs do cost more.
But they also do more.
You’re paying for:
Lifetime coverage
Cash value accumulation
Tax-advantaged growth
Loan access and flexibility
The real issue is poor design.
Overfunded IULs with blended term insurance can dramatically reduce internal costs.
Design matters more than the product.
Misconception #4: “You never lose money in an IUL”
The truth:
You’re protected from stock market losses — but not from policy fees.
If your index earns 0% in a given year, your account doesn’t grow… but fees still come out.
So yes, your cash value can decrease if the policy is underfunded or poorly designed with high expenses.
Misconception #5: “Why pay interest on your own money?”
The truth:
You’re not borrowing your own money — you’re borrowing against it.
Think of it like a home equity loan:
You don’t sell the house — you borrow using it as collateral.
In an IUL, your money stays in the policy, earning interest.
The insurance company lends you their money and charges interest.
Used properly, this creates leverage — which can be powerful if your policy earns more than the loan costs.
Misconception #6: “You’re paying interest to yourself when you take a loan”
The truth:
No — the interest goes to the insurance company, not to you.
You’re leveraging your cash value, not self-financing.
Misconception #7: “You should put everything into an IUL”
The truth:
Absolutely not.
IULs are not a replacement for all other savings or investment tools.
They’re one piece of a balanced financial strategy — usually the conservative, stable piece.
The best approach is diversification, not putting all your eggs in one basket.
Misconception #8: “IULs always beat the market”
The truth:
IULs are not designed to beat the market.
They’re designed to protect you from the market’s downside.
You trade unlimited growth for protection and steady compounding.
If you want maximum growth, look to stocks.
If you want stable, tax-free growth with no crash risk, that’s IUL territory.
Misconception #9: “All IULs are the same”
The truth:
IULs vary a lot — by company, structure, and design.
Some have:
Higher cap rates
Lower internal fees
More flexible loan options
Additional riders or index strategies
Working with someone who can compare multiple carriers matters.
One IUL can outperform another significantly — even with the same premium.
Misconception #10: “IULs have hidden fees”
The truth:
Every IUL illustration includes a detailed expense breakdown.
If your agent skips over that or doesn’t show you the expense page — that’s a red flag.
Fees are part of every financial product.
The difference is whether they’re explained honestly.
Misconception #11: “You’re locked into high payments forever”
The truth:
IULs are flexible premium policies.
You’re not locked into a fixed monthly amount.
You can:
Pay more upfront
Reduce payments later
Even pause or skip payments — if your cash value allows it
The key is funding the policy properly early on, so it stays strong long-term.
Final Thoughts
A well-designed IUL is one of the most flexible, tax-efficient financial tools available.
But poor explanations — or poor designs — have given it a bad reputation.
Now that you know the truth behind the most common misconceptions, you’re in a better position to decide if an IUL fits your goals.
Still unsure?
I’d be happy to walk through it with you.
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