If you’re familiar with term life insurance, you know it’s like renting coverage: you pay for protection for a set period, and if you pass away during that time, your loved ones receive a death benefit. And if you’ve ever had a retirement account like a 401(k) or IRA, you know it’s a place where your money can grow over time, often tied to the performance of the stock market.

An Indexed Universal Life (IUL) policy is like blending those two ideas together. It’s potentially a lifelong safety net for your family, plus an account that can grow along the way.

The Life Insurance Part

At its core, an IUL is permanent life insurance. That means it’s designed to last for your entire life, not just a set number of years. As long as you keep up with the premiums, it guarantees a death benefit, which is money that will go to your beneficiaries when you pass away.

This part works just like other life insurance you may have owned, whether it’s a term policy you had during your working years or a whole life policy you’ve carried for decades.

The Retirement Account Part

Here’s where it gets different. An IUL also has a cash value component, which you can think about like a market-linked account inside your policy. That cash value grows based on the performance of a stock market index, such as the S&P 500.

Think of it like this: it’s similar to how your retirement account might be linked to mutual funds or index funds, except you’re not directly investing in the market. Instead, the insurance company credits interest to your account based on how the index performs.

The Built-In Guardrails

One of the key advantages, much like some annuities, is that an IUL offers downside protection:

• Floor: Even if the market has a terrible year, your cash value won’t lose money due to market losses (the insurer guarantees a minimum interest rate).
• Cap: On the flip side, there’s a limit to how much you can earn in a great year, since the insurer sets a maximum interest rate.

These guardrails give you some of the upside potential of market-linked growth with protection against the full impact of market downturns, which most retirement accounts can’t promise.

Flexibility You Can Use in Retirement

Because the cash value belongs to you, you can borrow against it or make withdrawals while you’re alive. This could help:

• Cover a big expense without selling investments in a down market.
• Supplement your retirement income for a period of time.
• Pay for unexpected medical bills.

If your cash value grows enough, you might even use it to help pay future premiums, reducing the amount you need to contribute out of pocket.

Why Retirees Might Like an IUL

An IUL can be attractive if you want:

• Lifelong protection for your loved ones.
• Growth potential for part of your money, tied to a familiar market index.
• A safety net in the form of guaranteed minimum returns and protection from market losses.
• Liquidity: the ability to access funds if you need them, without touching your retirement accounts.

Bottom line: If you think of term life insurance as “protection only” and retirement accounts as “growth only,” an IUL can be thought of as a hybrid that offers protection + growth + flexibility. It’s not a one-size-fits-all tool, but for many retirees, it’s a way to keep a financial safety net while also keeping an accessible pool of money growing for the future.