1. Cash Value Growth

One of the standout features of an IUL is its ability to build cash value over time, which grows based on the performance of a selected stock market index (like the S&P 500). While your cash value is tied to the index’s performance, the policy is designed to ensure that you don’t lose money if the market goes down—there is usually a floor (e.g., 0% return) that protects you from market losses. This gives you the opportunity for higher growth potential compared to traditional whole life policies, without the risk of market volatility affecting your principal.

2. Downside Protection with Upside Potential

While IULs are linked to market indexes, they provide downside protection, which means that your cash value won’t decrease if the market performs poorly. This protection can make them an attractive option for risk-averse individuals who still want some market exposure for the possibility of higher returns. The policy typically includes a "cap" that limits the maximum return you can earn, but the ability to lock in gains when the market is up can lead to strong long-term growth.

3. Tax-Advantaged Growth

The cash value within an IUL grows on a tax-deferred basis, meaning you won’t owe taxes on any gains until you withdraw them. This tax-deferral feature allows your money to grow more efficiently over time. Additionally, policyholders can access the cash value through loans or withdrawals, often with tax-free benefits, if managed correctly.

4. Death Benefit Protection

Like any permanent life insurance, an IUL provides a death benefit to your beneficiaries upon your passing. The death benefit is typically income tax-free, which means that your family can receive the full benefit without worrying about taxes eroding it. This can provide financial security for your loved ones, especially if you are the primary breadwinner or have significant financial responsibilities.

5. Ability to Use Cash Value During Lifetime

The accumulated cash value can be accessed during your lifetime to serve a variety of needs. You can use the funds for emergencies, to supplement retirement income, or for other financial goals. The flexibility to use the cash value as a living benefit can be an attractive feature for those seeking both protection and investment growth.

6. No Required Investment Decisions

While IULs are tied to stock market performance, you don’t have to actively manage investments. The policy automatically allocates funds to index-linked accounts, so it’s a good option for people who want market exposure without having to pick stocks, worry about rebalancing, or track performance.

7. Potential for Supplemental Retirement Income

If structured appropriately, the cash value accumulated in an IUL can provide a supplemental income stream during retirement. By borrowing against or withdrawing the cash value, policyholders can access tax-deferred funds that can help cover living expenses or support lifestyle goals. The tax-free nature of the withdrawals, coupled with the potential for long-term growth, makes an IUL a strong option for retirement planning.