Don't be Spooked by IUL Premiums & Index Choices!

October 6, 2025
Published by: Christy Downs

Webinar by: Ira Gottshall & Ed Ledford

Hey there, life insurance agents! 👋

It's that time of year again—the fourth quarter! It's a busy time for us all and historically our most productive. So, to help you make the most of it, we’re tackling some topics that can be a bit "spooky" for life insurance agents: the various premium types and crediting options for Indexed Universal Life (IUL) and indexed annuities.

Understanding IUL Premiums

When it comes to an IUL, the wrong question to ask is "how much does it cost?" The right question is, "how much can my client deposit?" The more they put in, the better the policy will perform. Here's a breakdown of the premium types you'll see on a life insurance illustration, which are very similar across most carriers:

  • Minimum Premium: This is the smallest amount required to keep the policy in force. You can start a policy with this amount, but be aware that if the market has a bunch of zeros, your client may need to add more cash in the future to keep the contract from getting into trouble.
  • Guideline Level Premium: This is the maximum amount the IRS allows you to pay each year to ensure the policy maintains its tax advantages as life insurance.
  • 7-Pay Premium: The maximum you can pay each year for the first seven years. Paying more than this amount will cause the policy to become a Modified Endowment Contract (MEC), which changes its tax treatment.
  • Target Premium: This term once referred to the projected premium needed for the policy to last to age 121. Today, it primarily serves as a benchmark for a life insurance agent's maximum commissionable premium, but it still represents a solid funding level for the client.

Ed also noted that the Target Premium doesn't change for a client who is table-rated, but the policy's performance at that level will be significantly impacted.

Decoding IUL and Indexed Annuity Options

Both IUL and indexed annuities offer interest-crediting options tied to market indices, most commonly the S&P 500. A key feature of these products is the floor of zero, which means your client will not lose any money from their cash value if the market goes down. Here are the most common crediting methods:

  • Point-to-Point with a Cap: Your client's policy will be credited with 100% of the index's growth, up to a maximum percentage called a cap. For example, if the cap is 12% and the S&P 500 goes up 25%, the policy is credited with 12%.
  • Point-to-Point with a Participation Rate: The policy is credited with a percentage of the index's growth, without a cap. For example, with a 50% participation rate, if the S&P 500 goes up 10%, the policy is credited with 5%. Sometimes participation rates can be greater than 100%, and Ira explains that this is because insurance companies are buying options on the market, not actually investing the money directly.
  • Fixed Declared Rate: You can also allocate a portion of the premium to a fixed-rate option, which guarantees a certain level of return and reduces the policy's dependence on market performance.

Ed also touched on bonus products in the indexed annuity market, which give an upfront bonus to the plan. However, these products often have lower caps and participation rates than non-bonus products, as the bonus is a prepayment of future interest.

By mastering these terms and concepts, you can build a more profitable practice and, most importantly, provide your clients with the confidence and peace of mind they need to secure their financial future.

Coffee with Closers: Elevate Your Business

Coffee with Closers is more than just a podcast; it's a valuable resource for life insurance agents seeking inspiration, motivation, and practical advice. By sharing the experiences of successful agents, we aim to equip our life insurance agents with the tools and knowledge they need to build thriving businesses and achieve their professional goals.