IUL vs. Whole-Life Insurance: 5 Key Differences To Know

What is the difference between whole-life and IUL insurance? Read this IUL vs. whole-life insurance comparison article from Insurancy.
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Woman comparing IUL and whole-life insurance policies.

Written by Brian Greenberg
CEO / Founder & Licensed Insurance Agent

Last updated: July 1st, 2022

Reviewed by Nick Fenske
Licensed Insurance Agent

Securing life insurance benefits for your spouse and the rest of your family in case of your death is an important financial step. An insurance payout can assist survivors in paying bills, keeping a mortgaged house, and maintaining a comfortable lifestyle.

The range of life insurance products available can make choosing a new policy difficult. There are jargon and industry practices to learn, including discovering the difference between whole-life, term, and indexed universal life policies.


For many years, life insurance came in two basic flavors: whole-life and term. A whole-life policy is designed to be a stable, lifelong insurance contract that also serves as an investment or savings vehicle.

Enter IUL

Indexed universal life contracts are whole-life contracts in which the investment value is tied to an index. The index follows a group of stocks or bonds, such as the Standard & Poor’s 500, and rises or falls with the aggregate value of the assets included in the index.

5 Key Differences Between Whole-Life and IUL Insurance

What is the difference between whole-life and IUL insurance? It comes down to benefits as well as premiums and the terms surrounding cash value, policy loans, and fees.

1. Death Benefit

IUL policies have variable, non-guaranteed death benefits. The amount of the benefit can be affected by the amount of the premiums paid and the performance of the underlying index to which the policy is tied.

2. Premiums

Whole-life premiums have varying terms, but the terms are set at the purchase of the contract and, in most cases, can’t be changed. Premiums remain the same over the life of the policy.

In the battle of IUL vs. whole-life insurance, the former wins points on lower, more flexible premium payments. IUL premiums can vary at the discretion of the owner. If the payments increase, the values of the insurance and the investments also rise.

3. Policy Loans

Term insurance does not offer policy loans. Because whole-life policies carry an intrinsic cash value, which is designed to rise over time, the policy owner can request a loan borrowed against that value.

IUL policies also offer loans with various terms on the interest rate charged. The insurance company sets aside an equivalent amount as collateral for repayment and may charge a fixed or variable interest rate on the money borrowed. With an indexed loan, the funds held as collateral are subject to the rise or fall in the value of the index, and the interest rate charged is usually higher than that of a fixed-rate loan.

4. Cash Value

Whole-life policies build cash value as a portion of the premium is allocated to a savings or investment account. IUL policies function in a similar manner, but there are various ways of setting the rate of return on the cash portion.

Generally, the cash value of an IUL policy tracks the performance of the index. The policy can set a cap rate or the maximum amount of interest that the account can earn. There may also be a minimum return, known as the floor rate, or a participation rate, which sets the return as a percentage of the index performance. If the participation rate is 100%, then all of the index gains are reflected in the cash value. With a 50% participation rate, gains are limited to half the index performance.

5. Fees

IUL policies generally charge higher fees, as the management expenses for handling the investment account are much higher than with whole-life insurance. Buying, selling, and trading indexes are more expensive money management activities than simply buying and holding bonds, savings certificates, or mutual funds, as whole-life managers do.

Which Has More Risk?

Whole-life insurance is generally a more expensive product, but it’s also less financially risky for the owner. The guaranteed death benefit remains payable as long as the premiums are paid.

With IUL coverage, the owner has more flexibility with the premium payments. In addition, however, there could be an additional investment risk. The index performance could outpace the fixed return on a safer whole-life policy, but it can also underperform.

Indexed universal life insurance brings investment returns to the forefront while keeping a variable death benefit option for the policy owner. It’s more of an investment approach with a life insurance feature and, as such, is more risky than whole-life insurance.

Making a Choice Between IUL vs. Whole-Life Insurance

Anyone shopping for insurance should consider their reason for buying it. If the principal goal is to guarantee a certain death benefit amount, then whole-life life would be suitable. If tying a savings or investment account to the insurance is desired, indexed universal life insurance may be a better option.

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