If you only read one article about Indexed Universal Life (IUL), let it be this one.
Because this is where most people get hurt — not because IUL is bad, but because of how their policy was designed.
In fact, a poorly structured IUL can fail even if you’re doing everything right.
Why?
Two common reasons:
The agent didn’t know how to design it properly
Or they chose a design that increased their commission at your expense
Either way, you’re the one who pays the price.
Why Policy Design Is So Critical
The difference between a well-designed IUL and a poorly-designed one can mean:
Thousands of dollars in extra fees
Lower cash value growth
Higher risk of policy lapse
And lost trust in the product altogether
We’ll walk through three real examples — all for the same person, with the same premium — to show just how much design impacts performance:
One poorly structured
One average
And one fully optimized for the client
But before we dive into the examples, let’s define a key concept.
Base Insurance vs. Blended Term Insurance
Your death benefit can be structured in two parts:
Base Insurance
This is the permanent portion. It’s where the agent earns their commission. But it also comes with the highest internal costs.
Blended Term Insurance
This is added to help the policy meet IRS guidelines.
Agents don’t earn commissions on this part, and it’s much cheaper.
Here’s the key takeaway:
The more base insurance in your policy, the higher the fees — and the more the agent gets paid.
By blending in term insurance, you reduce costs and keep more of your money working for you.
A Simple Example
Let’s say your goal is a $500,000 death benefit. Here’s how the structure changes the policy:
Option 1: All Base Insurance
$500,000 Base Insurance
$0 Term
❌ Highest internal cost
❌ Highest agent commission
❌ Least money going to cash value
Option 2: Blended Design
$100,000 Base Insurance
$400,000 Blended Term
✅ Same $500,000 total death benefit
✅ Lower cost
✅ Lower commission
✅ More money building in your policy
Why does that matter?
Because if the agent earns $1,000 on the blended version, they could earn $5,000 on the all-base version — for the exact same coverage.
Now you see why some agents lean toward the high-base structure.
Real-World Comparison: 3 IUL Policy Designs
Let’s compare three designs for the same person:
Male, age 35
Contributing $15,000 per year for 25 years
Growth assumption: 6% average return
And don’t worry — the design principles apply no matter your contribution level.
🔴 Design 1: Traditional (and the Worst)
Level Death Benefit structure
All base insurance
No blended term
Death benefit: $920,000
Agent commission: $16,508
By age 65:
Cash value: ≈ $1.04M
Death benefit: ≈ $1.27M
The problem?
It looks decent on paper, but the high costs and agent-first structure often lead clients to stop funding the policy.
Eventually, it collapses.
This is the kind of design that gives IUL a bad reputation.
🟡 Design 2: Better, But Still Not Ideal
Increasing Death Benefit
Still no blended term
Base insurance: ≈ $290,000
Agent commission: ≈ $5,203
By age 65:
Cash value: ≈ $1.21M
Death benefit: ≈ $1.47M
Better, but not great.
Many agents stop here because it performs better — but it’s still not client-optimized.
🟢 Design 3: Client-Optimized
Increasing Death Benefit
Includes blended term
Base insurance: $100,000
Blended term fills in the rest
Agent commission: ≈ $1,794
By age 65:
Cash value: ≈ $1.28M
Death benefit: ≈ $1.56M
Same person. Same premium. Same insurance company.
But because of smarter design choices, this policy delivers more value, at lower cost, with greater flexibility.
Final Thoughts: Design Makes All the Difference
Policy design isn’t a minor detail.
It can mean the difference between:
A policy that grows, provides access to cash, and stays strong for decades
Or one that quietly drains your money and disappoints when you need it most
Now you’ve seen it for yourself:
Same premium. Different outcomes.
It’s not about luck.
It’s about structure.
And now you know what to look for.
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