Whole Life Insurance vs Indexed Universal Life Insurance

Key Takeaway

The primary difference between whole life insurance and indexed universal life (IUL) insurance is how each policy accumulates an account value. Whole life insurance products provide a static interest rate, whereas indexed universal life coverage products are tied to a stock market index.

IUL vs. Whole Life Weight Scale

Whole life and an IUL policy are both types of permanent life coverage. A whole life policy is one of the most common life coverage products, offering a fixed interest rate against the account value component. Indexed universal life also has an account value element, which grows based on the performance of the stock market index to which it is tied.

As with any insurance policy decision, consumers must understand the variances between the insurance policies and make informed choices about the policy that most suits their life requirements. This guide provides information to help you understand IUL vs whole life insurance policies. Talking with an insurance agent can also be helpful in determining which permanent life insurance policy will best meet your needs.

Understanding Whole Life and Indexed Universal Life Coverage

Whole life insurance provides a verified interest rate at the point of purchase. IUL insurance is somewhat different, as a policy that acts partially as an investment. The account value attracts interest rates that match an equity index–hence the policy name.

Each life insurance product is intended to provide permanent coverage. Whereas a whole life policy offers non-equity-linked interest rates, the pace of account value growth in an indexed policy will depend on how the stock market index performs.

Universal life insurance products also have different policy features. For example, you may have the option of increasing or decreasing your premium payments as the account value grows and might leverage a higher account value to boost the death benefit.

Features Table: Whole Life Insurance vs. Index Universal Life Insurance


Whole Life Insurance

Indexed Universal Life Insurance

Cash Value Growth

Grows at a fixed rate

Grows based on the performance of a financial index

Policy Flexibility

Limited flexibility in adjusting premiums and death benefits

More flexibility in adjusting premiums and death benefits

Risk Profile

Lower risk due to fixed interest rate

Higher risk due to market index performance

Account Value

Typically has a guaranteed cash value

Cash value is subject to market fluctuations and may not have a guarantee


Usually fixed throughout the policy term

May increase over time and are influenced by market performance

Tax Considerations

Tax-deferred growth of cash value and tax-free death benefit

Tax-deferred growth of cash value and tax-free death benefit

The Pros and Cons of Each Life Insurance Policy

Every life insurance product offers varied coverage, premium costs, exclusions, product features, and pay-out structures, and it is well worth researching the specific features of any life insurance policy you are considering. You can talk to financial advisors or insurance agents to help you determine which policy will best meet your needs. Insurance companies offer different terms and conditions on their policies so it's important to understand and compare your options.

Much depends on your insurance priorities and plans. For example, a person approaching retirement may prefer the lowest-risk product to protect their insurance value. Another might select a life insurance policy that offers the greatest possible account value growth over several years.

Advantages of Whole Life Insurance

One reason whole life coverage remains popular is that these products are well-known, provide stability and help ensure a protective plan. Insurance premiums are typically fixed, so you know what your insurance premium will cost .

Whole life insurance policies generally have a fixed rate of interest applied to the account value, which can act almost like a savings component because it enables holders to take out a loan against their life coverage should they need to. These personal loans from your policy can be used for things like credit cards, home mortgage payments, student loans, or whatever you need the cash for. It is important to remember, though, that unpaid loans and withdrawals from your whole life policy may impact the long-term value of the coverage.

Insured parties have a confirmed death benefit, payable to their named beneficiary when they pass away–provided no outstanding loans exist and all premiums have been paid. To summarize the positive aspects of whole life insurance:

  • Death benefits are normally fixed.
  • Premiums do not change with age.
  • There is the option of borrowing against the account value.
  • Most withdrawals are tax-advantaged.

However, in some cases, the financial interest rate could be subject to change, usually with a threshold minimum rate. Insurance premiums must be paid on time, and non-payment could cause the policy to lapse and become invalid.

Benefits of Indexed Universal Life Coverage

As we've explained, the major contrast between these two insurance products is how the policy attracts interest. Indexed universal life policies may provide a minimum interest rate, similar to a whole life insurance product. However, the policy is tied to the performance of a financial index–which tracks the performance of a group of stocks from an established market such as the NASDAQ or S&P 500.

The impact means that indexed universal life insurance products inherently carry a higher risk profile but can equally have a faster rate of account value growth if the index the policy is linked to performs well. In some scenarios, an indexed universal life policy account value can reach a no-cost policy position, where the accumulated account value more than covers all scheduled insurance premium payments.

Depending on the insurance policy features, policyholders may have varied options to customize their insurance by allocating some or all of their premiums, after deductions, to their account value. The caveat is that indexed universal life is a more complex product, and earnings may vary considerably. For instance:

  • Account value growth is dependent on the performance of financial equity markets.
  • If the index falls, returns may be minimal, although a floor rate may offer a minimum interest rate to prevent negative returns.
  • Premiums may increase over time, and the expenses deducted from premiums are higher than for whole life coverage.
  • Policy buyers should ensure they are comfortable with their index exposure, understand the minimum interest rates and participation thresholds, and can make continued on-time premium insurance payments.

Choosing Between Indexed Universal Life and Whole Life Insurance

Indexed universal life insurance is a fairly new type of life coverage product and provides a different way for policyholders to grow their account value. The risk versus reward element is that the account value of insurance is linked to a stock market index, which can influence how the account value increases.

It is always advisable to review the terms of permanent insurance coverage and any guaranteed benefits incorporated into the insurance contract and to choose the right type of life insurance based on your own requirements.

Frequently Asked Questions About the Differences Between Life Insurance

Which Costs More: Whole Life or Universal Life Insurance?

Life insurance estimates always rely on various factors, but whole life coverage tends to be a higher-cost product due to the static premiums, confirmed death benefit, and verified interest rate.

How Long Does Universal Life Insurance Last?

Universal life coverage is a permanent product intended to remain in place for the policyholder's lifetime, provided they maintain premium payments. However, insurance policies have a maturity date built in, which is the point at which the policy ends.

How Long Does Indexed Universal Life Insurance Last?

Like whole life coverage, indexed universal life insurance is a permanent product. It is a type of life insurance that accumulates an account value and offers the assurance of paying a death benefit to your named beneficiary when you pass away.

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The information above is for educational use only and does not represent insurance, tax or legal advice. It is not a recommendation or solicitation to buy insurance. Please talk to your licensed insurance agent for more information about life insurance and your needs. Please consult with the appropriate professional for tax or legal advice. Guarantees are backed by the claims-paying ability of the issuing insurance company.

Article Author: Meredith Bell
Author Bio: Meredith joined Everly in 2022 and has 20+ years of experience in the life insurance industry. She has held various roles in advertising, marketing, communications, sales and distribution support, and product development. Outside of the office, Meredith lives with her daughter Kennedy and their dog Mavis. Meredith enjoys cooking, camping, gardening, hiking, and bourbon (though not always at the same time). She is a live music enthusiast and an avid reader. Her favorite quote is by Thomas Jefferson: "I cannot live without books." Meredith agrees, but would add cheese, movies, and dogs to that list.

Policies are issued by Everly Life Insurance Company (“Everly Life”), Topeka, KS. Everly Life is not licensed in the state of New York and does not solicit or transact business in New York.

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