What are IUL cap rates and how do they affect my policy?

An indexed universal life (IUL) policy credits interest based on the performance of a market index, subject to a cap and a floor. The cap is the maximum interest rate your policy can be credited in a given period, regardless of how high the index actually performs. The floor—typically 0%—ensures you never lose existing cash value to market downturns.

For example, if the S&P 500 returns 18% in a crediting period and your cap is 10%, your policy is credited 10%. If the index drops 15%, you're credited 0%—not -15%. This participation with downside protection is the core IUL value proposition.

Current caps across the industry typically range from 8% to 12%, though they vary by carrier and are subject to change. Carriers can lower cap rates over time based on their hedging costs and business conditions. This is a critical risk of IUL that must be disclosed and understood: historical illustrations using today's cap rate may not reflect future crediting.

Always review the guaranteed minimum cap in your IUL contract and ask your agent to run an illustration showing reduced-cap scenarios. Guarantees are backed by the financial strength and claims-paying ability of the issuing carrier.