What fees are charged inside an IUL policy?

Indexed universal life insurance involves multiple layers of fees that reduce cash value growth. Understanding these costs is essential before committing to an IUL policy, as they significantly impact long-term performance.

Cost of insurance (COI): The largest fee, charged monthly based on the net amount at risk (death benefit minus cash value) and your age and health class. COI charges increase every year you age, and in later policy years they can substantially erode cash value if growth doesn't keep pace.

Administrative fees: Fixed monthly charges (often $5–$15/month) deducted for policy administration regardless of cash value or market performance.

Premium expense charges: A percentage deducted from each premium payment before it's credited to cash value—typically 2–8%.

Surrender charges: Applied if you cancel within the first 10–15 years (discussed in the surrender charge FAQ).

Rider charges: Optional riders (waiver of premium, accelerated benefit, etc.) add costs when elected.

Index strategy fees: Some strategies include a spread or asset charge rather than—or in addition to—a cap.

These fees must be weighed against the IUL's benefits: 0% floor protection, cap-linked upside, tax-deferred growth, and no contribution limits. A properly illustrated IUL must show all fees and their long-term impact on projected cash value.