Indexed Universal Life (IUL) is one of the most powerful tools available for clients looking to accumulate cash value with no downside market risk. Thanks to floor rates and index-linked crediting strategies, IULs offer the potential for higher returns — with the reassurance that your client’s cash value won’t go backwards due to market losses.
That story sells itself during the accumulation phase. But what about distribution? How can clients access that cash value in retirement — or sooner — in the most efficient way?
Let’s take a closer look at policy loan options and how they stack up against credit cards, personal loans, or even business lines of credit.
Clients with cash value in an IUL can borrow against their policy using it as a private line of credit — no credit check, no bank approval, and no tax consequences if managed correctly. Compared to:
Credit cards (average 20%+ APR),
Personal loans (with underwriting and higher interest), or
Business lines of credit (with paperwork, restrictions, and potential calls for repayment),
a policy loan can be a smarter, more flexible option — especially for clients who value liquidity and control.
Most IULs offer two types of loans:
A set interest rate charged on borrowed funds.
Predictable and straightforward.
Often convert to wash or preferred loans after a set period — where the interest charged is equal to the interest credited on the loaned amount, resulting in a net-zero cost.
The interest rate on loans floats, and the borrowed funds stay in the index account.
If the policy earns more than the loan rate (a positive arbitrage), the loan can actually boost policy values — a popular illustration technique.
But beware: if the policy earns less than the loan rate (negative arbitrage), clients may see policy values drop and projected income shrink.
Variable loans look better on paper, but they’re not right for everyone. If your client:
Has a low risk tolerance
Doesn’t plan to pay loan interest annually
Relies on fixed retirement income projections
… then fixed loans might be a better fit.
It’s not about which loan illustrates better — it’s about which one actually works better in your client’s real-world plan.
IULs are incredibly flexible tools, but that flexibility demands understanding. Advisors who position IUL as a tax-free income source need to fully grasp loan provisions and help clients make informed choices — or risk setting them up for surprises down the road.
Need help evaluating a policy loan strategy or showing a client how IUL can double as a private line of credit? Let’s talk. I’ll help you find the right product and structure to protect your client — and grow your business.