IUL Guide Last reviewed: 2026-10-03 Part of Indexed universal life

Death Benefit Option A vs Option B, and Why B Then A Builds Cash Value

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

Short answer: Option A (level) keeps the death benefit flat, so as cash value grows the insurance part shrinks. Option B (increasing) pays the face amount plus the cash value, so the insurance part stays level and costs more. For building cash value, a common design is Option B while you are paying premiums, then a switch to Option A when funding stops: the switch cuts cost of insurance at older ages. The switch must be timed to avoid MEC problems, so get an in-force illustration first.

The mechanics: net amount at risk

Cost of insurance is charged on the net amount at risk: death benefit minus cash value. With Option A and a $500,000 face, a policy with $200,000 of cash value has $300,000 at risk. With Option B, the death benefit is $500,000 plus the $200,000, so $500,000 stays at risk.

Option A vs Option B

	Option A (level)	Option B (increasing)
Death benefit	Face amount	Face amount plus cash value
Net amount at risk as cash grows	Shrinks	Stays about level
Cost of insurance	Falls relative to B as cash grows	Higher
Premium the policy can accept under tax law	Lower	Higher, for the same face
Best for	Lowest cost over a long life; late-life efficiency	Growing death benefit; accepting more premium while funding

Why B then A

During the funding years, Option B lets the policy hold more premium inside the tax-law limits for a given face amount, so more money goes to cash value. After funding stops, switching to Option A lets cash value growth shrink the amount at risk, which lowers cost of insurance exactly when the rates per $1,000 climb with age. The 2017 CSO table shows how steep that climb is (IUL fees and charges).

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The switching trap: the first 7 years

Switching from B to A lowers the death benefit. If a reduction in benefits happens within the first 7 contract years, the 7-pay limit is recalculated as if the lower benefit had applied from the start, which can turn the policy into a modified endowment contract (IRC 7702A). Some designs switch at a planned year well after funding; either way, ask the insurer to confirm MEC status in writing before switching. MEC rules.

Before you switch

Request an in-force illustration showing both options from today to age 100.
Confirm the switch will not create a MEC (ask for a 7702A test).
Check whether the switch is allowed any time or only on anniversaries, and whether it can be reversed (usually not).
If you plan policy loans, compare how each option affects the loan path.

Own an IUL, or weighing one?

Send the illustration or annual statement. Within one business day you get a written read on the Goldstein Index: funding level, charges, loan cost and lapse risk.

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

What is the difference between Option A and Option B?

Option A pays a level death benefit; Option B pays the face amount plus the cash value. Option B keeps more insurance at risk and costs more.

Which death benefit option is better for cash value?

Option B while funding, then a switch to Option A, is a common design for accumulation because it holds more premium early and lowers cost of insurance later.

Can I switch from Option B to Option A?

Usually yes. Confirm with the insurer that the switch will not create a MEC, especially within the first 7 contract years.

Can I switch from Option A to Option B?

Often only with new evidence of insurability, because it increases the amount at risk. Check your contract.

Does switching options affect taxes?

It can. A death benefit reduction within 7 years can recalculate the 7-pay limit and cause a MEC.

Sources

Hans Goldstein, CA Insurance License #4273294 · NPN 20602398 · Goldstein & Co. LLC dba Goldstein Insurance Services, CA License #6016830

Contact: hans@hansgoldstein.com · 213-414-2808

General education, not tax or legal advice. Tax treatment depends on your facts and on current law, which can change. Talk to your CPA or estate attorney. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Guarantees apply only to the contractual terms of the policy. Caps, participation rates, loan rates, charges and dividends are not guaranteed and can change. Hans is paid a commission by the insurer if you buy a policy through him. For life insurance, ask and he will tell you what he earns on your specific policy. Product and company names are trademarks of their owners. Goldstein Insurance Services is an independent agency, not affiliated with or endorsed by any insurer named here. Life insurance requires underwriting; not everyone qualifies. This page describes products in general terms; read the policy and the insurer's disclosures before you buy.