If Your IUL Is Underperforming: What to Do

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

Why IULs fall behind their illustrations

An illustration shows one set of assumptions run forward for decades. Real policies rarely track it, because index credits vary year to year, caps and participation rates can be lowered down to the contract's guaranteed minimum, the cost of insurance rises every year with age, and premiums are often paid late, short or not at all. Results usually land somewhere between the guaranteed column and the illustrated column. If yours is near the guaranteed side, the policy may need attention long before it lapses.

The fixes, in order

1. Fund it. Extra premium early does the most work, because it reduces the amount at risk while the cost of insurance is still lower.
2. Switch Option B (increasing) to Option A (level). Letting cash value replace part of the death benefit cuts the amount at risk and the charges. Get an in-force illustration first; changes within the first seven years can affect MEC testing.
3. Lower the face amount. A smaller death benefit costs less to carry. Check surrender charges and MEC effects before you do it.
4. Stop new loans and consider repaying old ones. Loan interest that compounds against a shrinking cash value is how many policies lapse; a lapse with a loan can create taxable income.
5. Consider a 1035 exchange into a policy or annuity that fits the job better. Exchanges move the cash value without current tax under IRC §1035 when done correctly, but a new policy means new charges, new underwriting and a new surrender schedule. California replacement rules apply.
6. Surrender or reduced paid-up as a last step, after the tax and coverage consequences are clear.

If you are 65 or older

At older ages the cost of insurance rises quickly (the guaranteed maximum rate roughly triples from 65 to 75 and rises about tenfold by 85 on 2017 CSO mortality, SOA). An underfunded policy can run down fast. Decide whether you still need the death benefit; if you do, a guaranteed universal life design may be the steadier home for it (GUL vs IUL). If you mostly want the cash, compare the surrender value against a fixed-rate alternative (MYGA rates).

About the agent who sold it

This page doesn't assume anyone acted improperly; illustrations are built on the insurer's assumptions and regulators' rules at the time of sale. If you believe the policy was misrepresented, you can contact the California Department of Insurance. For most owners the practical step is the same either way: get the in-force numbers and fix the policy while there are still options.

Is your IUL behind its illustration?

Send your annual statement or in-force illustration. Within one business day you get a written read on the Goldstein Index and the fixes in order.

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Rather talk it through? Or book 15 minutes on Hans’s calendar, or call 213-414-2808.

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

Frequently asked questions

Sources

1. Society of Actuaries, 2017 Loaded CSO, Nonsmoker Male ANB (table 3291)
2. 26 U.S.C. §1035 (certain exchanges of insurance policies), Cornell LII
3. 26 U.S.C. §7702A (modified endowment contracts), Cornell LII
4. 26 U.S.C. §72 (annuities and certain proceeds), Cornell LII
5. NAIC Actuarial Guideline 49-A (IUL illustrations)