These life-insurance policies are booming. Here's who should - and shouldn't - buy one.

By Robert Powell

Indexed universal life insurance policies have a very specific purpose that can help families, if used correctly

These insurance products may be better for financially well-off individuals than for those still paying off credit-card debts.

It's long been said that insurance is sold, not bought.

And that is certainly true when it comes to indexed universal life insurance policies, or IULs.

Indexed universal life insurance is a form of permanent life insurance that offers a death benefit while allowing cash value to grow based in part on the performance of a stock-market index, such as the S&P 500 SPX.

Most policies include downside protection through a guaranteed floor, but potential gains are limited by caps, participation rates and other restrictions imposed by the insurer. Supporters also cite the ability to access cash value through policy loans, and accelerated benefits for policyholders who become chronically or terminally ill. Those features have helped make IULs the do-everything product in the life-insurance aisle.

According to the latest data from LIMRA, a trade organization for the insurance industry, after a record-setting 2025, sales of indexed universal life insurance continued to surge in 2026. IUL sales reached $1.1 billion in the first quarter, up 14% from a year earlier. By the end of 2025, IULs accounted for roughly one-quarter of all new life-insurance sales in the U.S.

Yet advisers say the surge in popularity doesn't necessarily mean the policies are appropriate for most households.

"Indexed Universal Life policies are often sold as a 'have-your-cake-and-eat-it-too' solution: stock-market upside with downside protection and tax-free income," said Mark Stancato, a certified financial planner with VIP Wealth Advisors in Decatur, Ga.

In reality, Stancato said, "they are complex insurance products first and investment vehicles second."

Before deciding whether an IUL, whole life policy or another structure makes sense, Andy Panko, a certified financial planner and owner of Tenon Financial in Metuchen, N.J., said consumers should first decide whether they actually need permanent life insurance.

"You shouldn't buy a permanent life-insurance policy because you want this investment-like thing," Panko said. "You should buy it because you want and/or need a death benefit that will last your entire life, because first and foremost, this is life insurance."

That distinction matters because IULs are complicated products. They come with caps, participation rates, surrender periods, policy expenses and rising insurance costs that many buyers don't fully understand. Critics also argue that some sales illustrations rely on overly optimistic assumptions about future returns and policy performance.

Jeff Judge, a certified financial planner with Chesapeake Financial Planners in Forest Hill, Md., said he has spent years reviewing IUL illustrations and "watching clients make decisions based on projections that don't survive contact with the policy they actually own."

At their core, products like IULs and annuities are risk-transfer mechanisms, Stancato said. "The insurance company absorbs certain risks in exchange for limits, restrictions and fees," he said. "Many investors focus on the upside illustrations without fully appreciating how caps, participation rates, spreads and internal policy costs can drag down long-term performance."

The ideal buyer

Advisers say IULs are best suited for a relatively small group of high-income households with a need for permanent insurance.

Consider a high-income physician with a special-needs child, substantial assets and a need to create permanent liquidity for heirs. The family has already maxed out retirement accounts, built emergency reserves and eliminated debt.

They already own $3 million of 30-year term insurance to protect the family during peak earning years. But term insurance alone doesn't solve the bigger problem of creating permanent liquidity for a special-needs trust or estate-planning purposes, regardless of when death occurs.

In that case, the IUL may serve a legitimate planning function. The death benefit is the primary objective. The tax advantages are secondary. The cash value may simply be an added feature.

Panko said permanent life insurance can also make sense for estate-liquidity purposes, buy-sell agreements among business owners or families seeking to ensure money is available for heirs or special-needs trusts regardless of when death occurs.

Judge said the best candidates are usually people who have already maxed out traditional retirement accounts and can commit to funding the policy aggressively for at least 15 years.

"That last condition is the one most salespeople skip," Judge said.

The less-than-ideal IUL buyer

Now consider a 56-year-old earning $95,000 a year who has credit-card debt, minimal savings and a modest 401(k) balance. An agent pitches a $300-per-month IUL as "better than a Roth IRA." The household lacks an emergency fund, isn't capturing the full employer match in its 401(k) and has no obvious need for permanent life insurance. In that situation, advisers say the potential tax benefits are unlikely to outweigh the costs and complexity of the policy.

"I flat-out feel anyone who's low income should not be buying permanent life insurance, especially IUL," Panko said.

Interactive tool: Is an IUL right for you?

Judge offered a similar view. "If you haven't maxed your qualified accounts yet, an IUL is almost never the right first move," he said.

The concern, advisers said, is that many households lack the cash-flow flexibility needed to fund these policies over long periods of time. If income drops, a job is lost or competing financial priorities emerge, premium payments may be reduced or stopped altogether, potentially undermining the policy's long-term viability.

What to know before buying an IUL

So what should those for whom an IUL is best suited know before signing on the dotted line?

Advisers said prospective buyers should understand three things.

First, illustrations are only projections. "The guaranteed column is not a prediction," Judge said. "It's a worst-case stress test."

Second, insurers can change caps, participation rates and other policy mechanics over time, within contractual limits. As a result, a 25% gain in the underlying index might produce a credited return of only 10% to 12% once those caps, participation rates and policy expenses are applied, advisers said.

"Always ask who can lower your cap next year," Judge said. "The carrier can."

Third, policies require ongoing monitoring. Michael DeMassa, founder of Forza Wealth Management in Sarasota, Fla., recommends annual in-force illustrations to compare actual performance with original projections.

Panko, who purchased an IUL himself several years ago as what he described as an "experiment," said his own policy has so far performed roughly in line with original projections, although he emphasized that long-term outcomes remain uncertain.

Ultimately, advisers say the question is less whether IULs are inherently good or bad and more whether buyers understand the trade-offs and whether the product is being sold to the right person.

For many households, advisers say, the biggest mistake is buying the policy before fully understanding how it works.

"My advice is simple," Stancato said. "If someone cannot clearly explain how the policy works after it has been presented to them, they should not buy it."

-Robert Powell

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06-23-26 1453ET