Premium paid
Single, scheduled or flexible premiums enter the policy.
How IUL works
Separate premium flows, index crediting, the economic logic behind floors, and the ongoing deduction of cost of insurance.
Where the money goes
Charges come before index crediting.
Charges deducted
Premium, COI, administration and rider charges apply under the contract.
Account allocation
Remaining value is allocated to fixed or indexed-crediting strategies.
Period-end crediting
Floor, cap, participation or spread is applied at the end of the observation period.
Protection continues
Cash value continues funding charges; more premium may be needed if it becomes insufficient.
Four key parameters
The same index move can produce a very different crediting result.
Floor
The minimum index-crediting rate for a period, often 0%; not a cash-value floor.
Cap
The maximum index-crediting rate; index gains above it are not credited.
Participation rate
The contractual share of index gains. A high rate does not automatically mean a high net return.
Spread
A percentage deducted from index change; the contractual calculation order matters.
How can an insurer offer a floor?
General-account assets support obligations; an option budget provides upside exposure.
A useful educational model is that an insurer uses general-account assets to support contractual obligations and allocates an available budget to index-related derivatives. In an up market, option value supports index crediting. In a down market, the option may expire worthless and crediting follows the contractual floor. The customer does not directly own stocks or the index.
1General-account assets
2Index-option budget
3Contractual crediting formula
! Guarantees depend on the insurer’s contractual obligations and claims-paying ability, not a government guarantee.
! Assets, option budgets and risk management differ by insurer.
! Even with 0% index crediting, COI, administration and loan interest can reduce cash value.
Interactive formula
Put index change, participation, floor and cap into one formula.
Interactive tool
Index-crediting illustration
Use four inputs to see how index movement can become a policy crediting rate.
Illustrated crediting rate8.00%
Index change × participation, then apply floor and cap
The result sits between the floor and cap.
Formula order, observation periods, dividend treatment and parameters differ by product. Refer to the contract.Premium and COI
Price only makes sense alongside guarantees and the charge path.
Traditional life vs IUL: premium for the same death benefit
Illustration caseMale age 40 · Non-smoker · USD policy
Traditional life single premium
$567,926- Premium / cover
- 18.93%
- Nominal cover multiple
- 5.28×
S&P 500 IUL single premium
$307,812- Premium / cover
- 10.26%
- Nominal cover multiple
- 9.75×
- Lower than benchmark
- 45.8%
Multi-asset IUL single premium
$217,195- Premium / cover
- 7.24%
- Nominal cover multiple
- 13.81×
- Lower than benchmark
- 61.8%
Cheaper is not the conclusion
This is one illustration case, not a quote. Guarantees, cash value, surrender periods, charge-adjustment rights and lapse risks must be aligned before comparison.
How is COI calculated?
Illustration caseAge 85 · Current rate · Monthly deduction
Net amount at risk
Death benefit − account value
$1,354,023Monthly COI
Net amount at risk ÷ 1,000 × monthly rate
$5,893Annual COI
Monthly COI × 12
$70,714Account return needed to cover annual COI only4.30%
The current rate is not the guaranteed lifetime rate. This is not the policy break-even return and excludes other policy charges, riders, financing interest and surrender charges.