An IUL policy is a type of permanent life insurance that allows the cash value component to earn interest based on the performance of an equity index like the S&P 500. The cash value growth is tax-deferred and the policy provides a death benefit. 

The cash value earns returns linked to the index, subject to caps (maximum rate) and floors (minimum guaranteed rate). This provides some market exposure with downside protection. Policyholders of Indexed Universal Life can take loans or withdrawals from the accumulated cash value.

Some promote using an IUL as a tax-advantaged way to save for retirement by overfunding the policy and accessing the cash value later in life. Potential benefits include:

• Tax-deferred cash value growth

• Tax-free loans and withdrawals in retirement

• No contribution limits like 401(k)s

• Downside protection from market losses

However, IULs have higher fees than 401(k)s and IRAs. Returns are capped, limiting upside potential compared to directly investing in equities.2 Most experts recommend maximizing 401(k) and IRA contributions first before considering an IUL for retirement.

While IULs offer unique benefits, they are complex products that require careful evaluation. For high net worth individuals, an IUL could supplement other retirement accounts, but may not be suitable as a primary retirement savings vehicle for most people due to the fees and caps 

Indexed Universal Life Illustrations

An illustration for an indexed universal life (IUL) insurance policy is a projection or hypothetical calculation that shows how the policy's cash value and death benefit could potentially grow over time based on certain assumptions and crediting methods.

The key components of an IUL illustration typically include:

1. Premiums - The amount of premium payments being paid into the policy annually or over the premium payment period.

2. Index Account Crediting - This shows the hypothetical annual interest credits to the policy's cash value based on the performance of the tracked index (e.g. S&P 500) subject to caps, participation rates, and floor rates specified in the policy. Cash Value Accumulation - The projected growth of the policy's cash value over time from the premium payments and interest credits, after fees and charges are deducted.

3. Death Benefit - The projected death benefit amount the policy would pay out based on the accumulated cash value.

4. Policy Charges/Fees - Itemizes the various fees and expenses charged by the insurer like cost of insurance, administrative fees, rider costs etc.

IUL illustrations will typically show three different scenarios - a hypothetical "historical" scenario using actual past index performance, an "assumed" rate scenario using a stated index return assumption, and a guaranteed minimum scenario.

However, recent regulatory changes require IUL illustrations to use a maximum illustrated rate based on a standardized methodology rather than allowing insurers to choose their own rates. This is to prevent overly optimistic illustrations.

While illustrations aim to demonstrate the potential policy performance, they are hypothetical and not guaranteed. Actual results will depend on the index performance, how long the policy is held, and the insurer's crediting methods