INSURANCEONE AMERICA’S GUIDE TO BETTER COVERAGE
Step 4 of 6 Guide contents

The ones with moving parts

What about universal life, IUL and VUL?

The short answer

Each one is permanent coverage with a part that moves: what you pay, an index, or the market. Ask what happens when that part moves against you, and ask to see the guaranteed column.

These are permanent policies with moving parts. The moving parts are where people get hurt.

Don't know a word? Press any purple word to see what it means. They're all listed at the bottom of the page.

Four products, side by side

What each one does, and where each one can go wrong.

  • Universal life: you can vary what you payReal flexibility, and also how policies die: pay less for long enough and it can run out of money and end, decades after you started. That happened at scale when interest rates fell and the assumptions behind 1980s policies stopped holding.
  • Guaranteed universal life: the coverage is guaranteed to an ageIt removes that risk by guaranteeing the coverage to a stated age, provided you make exactly the payments the contract requires. Miss them and the guarantee can go.
  • Indexed universal life: tied to an index, with a floor and a capA falling index generally cannot cut the balance on its own, and a rising one does not hand you the whole gain either. Regulators have tightened the rules on how it may be illustrated twice since 2015, because of the way the projections were being shown.
  • Variable universal life: in market funds, with no floorThe balance can fall with the market. It is a security, so anyone selling it needs a securities license as well as an insurance one. Ask to see both.

The floor and the cap

The part people mishear.

The floorStops a bad market year taking your balance down.
The capStops a good year giving you all of the gain.

Both halves of that are true, and the sales conversation tends to spend much longer on the first half.

A floor and a cap, across five hypothetical years

The floor protects you in the bad years. The cap collects in the good ones.

Illustrative years chosen to show the mechanism. Not a forecast of anything.

How a floor and a cap change what gets credited to an indexed policy Across five hypothetical years, the index rises strongly, rises modestly, falls, rises very strongly, then falls slightly. What gets credited is the same in the modest year, clipped by the cap in both strong years, and held at the floor in both falling years. UP DOWN THE CAP THE FLOOR Strong year Modest year Bad year Best year Slight drop What the index did What got credited to the policy

Swipe the chart sideways to see all of it →

No percentages on purpose: the cap and the floor are set by the insurer, differ by policy, and can be changed. And in every one of these years, including the two sitting on the floor, the cost of the insurance still comes out of the balance.

What we will not do on this site

We will not hand you an illustration with a number at the bottom and call it what you are going to get. Those projections are assumptions. On a real policy the only column that is a promise is the guaranteed one, and the rules on illustrations were tightened twice since 2015 because of how often that distinction got lost.

Before you sign

Three questions to ask

  • What happens if I pay less than planned?On a flexible policy that is the question that decides whether it is still there in thirty years.
  • Can the cap change?On most indexed policies it can.
  • Can I see the guaranteed column?Not the one in the middle. The guaranteed one.

Remember this

Ask to see the guaranteed column. On a real policy it is the only one that is a promise.

Words on this page

Cap
The most an indexed policy will credit in a year, however well the index does.
Floor
The least an indexed policy will credit in a year, often 0%, even when the index falls.
Permanent life insurance
Coverage meant to last your whole life as long as it is paid for, not a set number of years.
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