Common IUL Costs and Risks
Pending compliance review · Last reviewed October 11, 2026
Short answer: IUL policies include ongoing charges, and they carry risks if underfunded or if loans grow too large. Understanding them is essential before buying.
Ongoing charges
Cost of insurance (which generally rises with age), premium loads, administrative fees, and rider charges are deducted from the policy.
Surrender charges
Ending the policy in early years can trigger surrender charges that reduce what you receive.
Loans, lapse, and taxes
Policy loans accrue interest and reduce the death benefit. If loans plus charges exceed cash value, the policy can lapse — and a lapse with an outstanding loan may create taxable income.
| Risk | What can help |
|---|---|
| Underfunding | Fund consistently at a level you can maintain |
| Lower crediting than illustrated | Review illustrations at conservative rates |
| Loan growth | Monitor loan balances annually |
| Rising cost of insurance | Annual policy reviews |
Frequently asked questions
Is IUL income tax-free?
Not universally. Loans may avoid current income tax when a policy is properly structured and stays in force, but lapses, surrenders, and some withdrawals can be taxable.
Related guides
Indexed universal life is life insurance, not a stock market investment. Illustrations are hypothetical and not guaranteed; caps, participation rates, and charges can change. Loans and withdrawals reduce values and may cause lapse and taxes. Guarantees depend on the issuing insurer’s claims-paying ability. Not tax or legal advice.