Indexed Universal Life for Infinite Banking
Build your own buying criteria before talking to an agent.
“IUL can work for infinite banking when the company is chosen wisely, the policy designed properly, funded thoroughly, and managed diligently. Miss any one of those four, and it may not go so well.”
You’ve heard IUL is a ticking time bomb from Whole Life agents who’ve never sold one or owned one. You’ve heard IUL is expensive from financial pundits who’ve never owned one or sold one. You’ve heard it beats the S&P from IUL agents. All are exaggerated.
I own both, I sell both, and I can say definitively IUL has been a solid diversifying additive to my banking strategy for its protected growth mechanism and low locked loan rate.
IUL is not meant to beat the market; it’s meant to beat the bank with its market-linked upside, protective floor, and obviously the tax advantages. Judge it against your cash, CDs, and bonds, not against the raw S&P 500. It will not beat the index over multiple decades, but it will outperform during the biggest crashes when opportunities abound for those who can access cash.
Free Webinar for the Tardus Community: Whole Life & IUL in a Rising-Rate World.
Tuesday, September 22, 2026 at 12:30 PM Pacific Time. How This Impacts New Policies, Old Policies, & Loan Options.
Learn These Key Trade-Offs & Prioritize Accordingly
No policy can be optimized in all four of these categories at once. Decide which priorities matter to you the most, to narrow down which carrier and which design you should be focused on.
AGrowth PotentialUnderstand what the cap, floor, participation rate, and/or spread actually mean to your growth mechanism. Know which of them are guaranteed versus what the carrier can change after the fact. On that note, understand which carriers have a habit of changing the game on old policyholders. Since the S&P 500 has gone up three-quarters of the time over the last 89 years, test and measure different timeframes.
BGuarantees & DownsidesThe 0% floor is real, meaning a down year in the S&P 500 won’t cause losses to your cash value, but the ongoing fees and charges still exist. Be sure to have these charges modeled for you at different crediting rates so there are no surprises in down years.
Also understand that, unlike Whole Life, IUL has no guaranteed level premium, no guaranteed death benefit, and the cost per unit of insurance does increase every year. You are depending on the fact that performance will shrink the amount of pure insurance as you get older.
CPremium FlexibilityIUL’s flexible premium is one of its biggest touted benefits, and it is real. However, if you take advantage of flexibility too much, you will be underfunding your policy, and the index crediting won’t be able to outrun the fees and charges. Be sure to model light-funded situations that represent a minimum viable scenario for your situation to see if it still works.
DBorrowing MechanicsThis may be the biggest advantage, and it is something uniquely IUL. Your HELOC rate will float for sure, as do most Whole Life policy loans and cash value lines of credit. However, several IUL carriers offer a low, locked loan rate for life that still allows you to participate in certain index crediting strategies. This alone may be worth exploring IUL more.
1Company Selection: Will They Stand Behind the Policy They Already Sold?
Caps and participation rates are not guaranteed. Some carriers launch a shiny new IUL with high caps and pay for it by cutting caps and participation rates on the customers already locked in. My own third IUL, bought from a stock company in 2014, had its cap and participation rates lowered while that same carrier kept them high for their latest and greatest IUL policy they were selling to new customers. Just because you’re looking at a great-looking illustration, you should learn the history of the company backing it.
This is a lifetime contract, so compare the carrier’s ratings against the other carriers being proposed to you, not in isolation. On the Whole Life page I told you to insist on a true mutual. IUL does not give you that choice. Only one true mutual sells both a participating Whole Life policy and an IUL, and most of the rest of the reputable IUL field is mutual holding companies, plus a couple stock companies (there really are a few good ones).
In IUL, you are not getting a dividend from a company you own a piece of. You are vetting whether the company will keep caps and participation rates fair on the policies it already sold. A mutual holding company has no quarterly earnings calls and no extra hand in the cookie jar from stockholders like stock companies do, so in this product a mutual holding company still beats a stock company. This is simply an observation rather than an absolute rule, but my own cautionary tale with the stock company was enough for me to lean mutual.
Ask your agent “Is this a stock company, a mutual holding company, or a true mutual company? How has this company treated its old policyholders’ caps and participation rates after releasing new product offerings? Show me, don’t tell me, this carrier’s cap-rate history on policies issued 10 or more years ago, next to what it offers new buyers today. Has that gap ever been wide?”
2Misleading Metrics, Rosy Illustration Rates, and Certain Black-Box Indexed Crediting Strategies
Unfortunately, regulators make agents use a smooth average rather than running the S&P 500’s lumpy history through an insurance company’s cap, floor, and participation rate. AG49-A is the 2020 rule that caps how high an IUL illustration is allowed to project, and it did help. However, with a 0% floor and roughly a 10% cap, 79 of the last 89 S&P 500 years would have credited either under 3% or right at the 10% cap. Only 10 of those 89 years landed in between. Yet most illustrations show steady crediting between 3% and 7%, which is just not real.
No illustration will predict the future, and with IUL there is even more that can move than with Whole Life: caps, participation rates, charges, and loan rates. Still, illustrations are the only measuring tool we have to work with. And although it is now possible to use AI to do some ballpark analysis on how different volatile periods may perform within an IUL, that is still just a projection and not based on true carrier assumptions.
However, there is a lot we can glean from illustrations. When comparing one company to another, we can see how well a policy performs, not just at the prescribed maximum rate that regulators allow, but also at lower, stress-tested rates to see how quickly the internal fees and charges cannibalize cash value or not. We generally run those 1.5 to 2 points below the maximum the rule allows.
Then find every bonus baked into the illustration. Buy-up caps and multipliers have largely gone away, but bonuses that are not guaranteed are still being used to juice the illustrated crediting rate. Their fees are real and contractual. Their benefits are not.
Separately, there has been a growing trend of insurance companies partnering with well-known investment firms to create “volatility-controlled indexes.” These indexes allegedly use algorithms to help you time the market on a daily basis within an IUL.
I chose a volatility control index for my one IUL from a stock company, and it substantially underperformed the raw S&P 500 index in almost every year. In practice, we have found that these strategies consistently underperform a quality company’s pure S&P 500 strategy. This is especially true when compared to companies that maintain integrity and treat in-force policyholders fairly regarding caps and participation rates.
Ask your agent “Re-run this at 1.5 and 2 points below the AG49-A maximum. Is this crediting strategy a transparent S&P 500 index, or a proprietary volatility-control index? And does any of the illustrated growth come from a multiplier or bonus, and is that multiplier bonus guaranteed?”
3Max-Funded Design: Minimum Death Benefit, Maximum Premium, Real Charges
IUL charges are driven by death benefit, not by premium. So a policy built for cash value carries the smallest death benefit the IRS allows and the largest premium that stays under the Modified Endowment Contract line (the 7-pay test that decides whether your loans stay tax-free). That limit is not a flat dollar figure; it moves with your age, your health and your death benefit.
Shrinking the death benefit to the minimum also shrinks the agent’s commission, which is why so many proposals aren’t showing the max funding.
Unlike Whole Life, which is a black box, IUL has total transparency, so you can ask for a detailed report of the fees and charges. You can see how they may start high due to acquisition costs, surrender charges, plus a premium tax the carrier must pay on all incoming premiums. But you can also see that after the first 5 to 10 years, these charges drop substantially in a max-funded design.
Expect to break even over the first 3 to 5 years depending on performance when illustrating at the maximum allowable crediting rate, but be sure to see how the policy performs if it earns less than the projected growth. Don’t worry, you still have an escape hatch: you can ask your agent to manually lower the death benefit if for some reason you don’t get sufficient performance on your policy.
Ask your agent “Is this the minimum amount of death benefit? Is this the most efficient non-MEC max solve, meaning the minimum death benefit given my age, health, and desired premiums? Then be sure to run the full charges report year by year for not just the projected crediting rate, but at least one lower alternative so I can see how it impacts my policy.”
4Fund It Hard Early, Because Nothing Here Is Guaranteed
On the Whole Life page I said max-fund 4 of the first 7 years, and that 3 can work. IUL needs the full 4 of 7, because its charges are front-loaded and its surrender-charge period behaves like a vesting schedule. Use the same discipline Tardus teaches with the Income Snowball: fund the policy from cash flow your snowball already produces, never from the leverage vehicle itself. The flexibility is real, and it is two-edged. Funding late and catching up later or skipping years mid-schedule can cost you real retirement income, unless you get above-average performance.
Two criticisms of IUL survive scrutiny, and you should plan around both. Nothing obligates a carrier to raise your cap, and the cost per $1,000 of death benefit rises every year for life. There is no guaranteed level premium and no guaranteed death benefit here the way there is in whole life. However, you can always manually reduce the death benefit if for some reason your IUL policy did not get the performance you were expecting.
That matters most at the end. If the policy lapses with loans outstanding, every dollar of gain above the premiums you paid is taxed at once, usually in retirement, usually with no cash on hand to pay it. Ask which riders this contract carries to prevent that, and what triggers them.
Ask your agent “Show me the same policy with lower premiums, or possibly even skipping certain years if that’s a real concern. Also, stress-test that same flexible illustration at a lower-than-projected index crediting rate to see what happens to my premium, my death benefit and my income, and whether it can still carry without lapsing.”
5Borrowing Mechanics: The Loan Rate Must Be Locked or Capped
This may be the biggest benefit that IUL offers somebody considering it for infinite banking or a Tardus snowball. I have said since 2013 that IUL can work for infinite banking, when I bought my first two. Yet much of the Infinite Banking echo-chamber calls IUL a ticking time bomb, even though they’ve never bought one or sold one. But it only works when three things are true together: a guaranteed 0% floor, a loan rate that is locked for life or at least contractually capped, and strong caps or participation rates, ideally with an uncapped option. Miss one and the criticism is fair.
The feature that makes IUL so unique is this low locked participating loan, where the borrowed cash value has an opportunity to earn index crediting at a higher rate while borrowing at a lower rate. You have to examine the fine print and see which crediting strategies can still participate while that loan is out. Also, cash value line of credit vendors are starting to accept certain IUL companies for collateral, which opens up positive arbitrage for any of the strategies, including uncapped strategies.
Thankfully, we haven’t had to see what happens when prevailing interest rates go too high above 6%, but if we hit hyperinflation, IUL’s locked loan rate will be an invaluable tool for infinite banking, even if Whole Life is still your foundation and this is supplementary to your insurance portfolio.
Ask your agent “Is the policy loan rate fixed by contract for the life of the loan? Am I limited to certain crediting strategies when using the participating loan?”
6Make Illustrations Prove the Trade-Offs
No illustration predicts the future, and with IUL there is more that can move: caps, participation rates, charges and loan rates. That is exactly why a current illustration is still the best measurement tool you have for comparing designs between carriers and stress-testing what happens when life does not go according to plan.
A good design will hit fairly predictable milestones.
- Cash-on-cash breakeven, where total cash value passes total premiums paid, around years 3 to 5.
- Annual charges falling to around 1% once you’re done paying premiums, and even lower after year 15, down to around the cost of cheap ETFs and index funds by retirement age if the performance metrics are hit.
You should be able to spot when both of these crossovers happen on the proposed illustration.
Then you should have the agent stress-test the situations you’re actually concerned about:
- What happens if the illustrated rate is cut by 1.5 to 2 points for the life of the policy?
- What happens if I can’t keep max-funding it?
- What happens if I have to stop paying altogether?
- What happens if I take large loans I cannot afford to repay?
Then compare the strongest candidates apples-to-apples: same insured, same underwriting class, same premium and same funding period. A properly designed policy from a top-quality carrier should be able to withstand any of these scenarios and still look attractive.
Ask your agent “Compare the strongest policies with apples-to-apples premiums, for not only favorable funding conditions, but also if I can’t fund it as planned.”
Bottom Line
Every carrier, product and design has trade-offs, and IUL has more moving parts than whole life does. Your job is to decide which trade-offs matter most to you, have the policy designed around those priorities, and require the agent to explain, clearly and with numbers, how and why the recommendation fits your goals.
If you could only ask four questions
- Is it a true mutual, a mutual holding company, or a stock company?
- How has the carrier treated in-force policyholders after releasing a new product to new potential customers?
- What does this policy look like 2 points below the illustrated rate, and at half the planned premium?
- What is my actual IUL loan rate, is it locked for life in the contract, and does borrowed cash value keep earning?
Where Are You Right Now?
Keep Going
Unsure which product fits? Read Whole Life vs. IUL, or if you prefer to watch, here’s a Whole Life vs. IUL video.
Educational only. Indexed Universal Life policies involve fees, caps, participation rates, spreads, policy charges and loan risk. Index credits are not guaranteed. Policy loans and withdrawals may reduce cash value and death benefit, may cause the policy to lapse, and may create taxable income if not managed properly. Product features, riders and availability vary by carrier, contract and state. Review the actual contract and current illustration. John “Hutch” Hutchinson, ChFC®, CLU®, AEP®, Founder of Banking Truths, has owned 14 permanent life insurance policies from three mutual insurance companies, with aggregate cash values exceeding seven figures. He is not affiliated with The Infinite Banking Concept®, the Nelson Nash Institute, R. Nelson Nash, or his book Becoming Your Own Banker®: Unlock the Infinite Banking Concept®. However, if speaking with an Authorized IBC Practitioner™ is important to you, we can connect you with one on the Banking Truths team. This analysis reflects Hutch’s professional opinions and 19 years of experience and is not tailored financial advice for any individual situation. Policy performance varies based on personal circumstances, carrier performance, policy design, funding, and loan usage.