How does the IUL 0% floor protect my cash value?

The 0% floor in an indexed universal life policy means your credited interest rate cannot go below zero in any crediting period due to index performance. If the market index your policy tracks drops 20% in a year, you are credited 0%—not -20%. Your existing cash value is not reduced by market losses.

This protection is the primary differentiator between IUL and directly investing in stocks or index funds, where market losses directly reduce your account balance. The floor provides a downside buffer that many policyholders find psychologically and financially valuable during volatile market periods.

However, the floor applies to index-linked crediting only—it does not protect cash value from policy fees. Monthly cost-of-insurance charges, administrative fees, and rider costs are deducted from your cash value regardless of market performance. In a 0% crediting year, these fees still reduce your cash value.

Over time, if your policy is underfunded or fees are high relative to cash value, the floor does not prevent cash value erosion from fees alone. This is why adequate funding and careful policy design are essential for IUL policies to perform as illustrated.