Indexed Universal Life vs Universal Life

Written and reviewed by Hans Goldstein, licensed insurance producer, NPN 20602398 · CA Insurance License #4273294
Last reviewed October 3, 2026 · Published October 3, 2026

The universal life family

Universal life types (general features)

The 1980s lesson

Universal life was sold widely in the 1980s and 1990s, often illustrated at continuous rates of 10% to 13%; those policies later earned closer to 4% to 4.5%, and many needed much bigger premiums than owners expected or lapsed in their 70s and 80s (Wall Street Journal, 2018; Journal of Financial Planning, 2015). Cost of insurance increases on older UL blocks later led to large settlements. The same engine runs inside every IUL: if credits come in below the illustration, the policy needs more premium to stay in force. That is why the guaranteed and midpoint columns matter, and why California requires an illustration to show guaranteed, midpoint and illustrated values (CA Ins. Code 10509.956).

Why IUL replaced declared-rate UL for many buyers

In a low-rate world, a declared UL rate tracks the insurer's bond portfolio and stays low. An IUL spends roughly the same budget on index options, which gives a chance at higher credits in good years and a 0% floor in bad ones. Neither is guaranteed to win. When bond yields are high, as in 2026, declared rates and IUL caps both tend to rise.

How to choose

1. If the goal is a guaranteed death benefit at the lowest cost: GUL.
2. If the goal is cash value with a floor and some upside, funded 15+ years: IUL.
3. If you want a simple declared rate and modest cash value: current-assumption UL.
4. If you want market exposure: VUL through a registered representative (Hans does not sell it).

GUL vs IUL · IUL vs VUL · IUL vs whole life

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Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer

Frequently asked questions

Sources

1. Ins. Code 10509.956(c)(1) requires the basic illustration's numeric summary at years 5, 10, 20 and age 70 on three bases: (A) policy guarantees, (B) the insurer's illustrated scale, and (C) a midpoint scale (dividends at 50%, credited interest and charges at the average of guaranteed and illustrated) (as of 1997-07-01)
2. 1980s-90s universal life was often illustrated at continuous 10%-13% rates; policies later earned about 4%-4.5% and many face lapse or steep premium increases (as of 2018-09-19)
3. Journal of Financial Planning (Peter Katt, Aug 2015): early-1980s UL offered double-digit crediting rates; ULs bought in the 1980s-90s are 'uniformly underfunded' because crediting rates fell; rates began declining around 1993; suggests reviewing IUL illustrated at ~8.5% at about 4% (as of 2015-08)
4. NAIC Actuarial Guideline 49-A (IUL illustrations)