IUL Cash Value Calculator

What this calculator shows, and what it does not

An indexed universal life policy (IUL) is permanent life insurance with a cash value. Each month the insurance company takes its charges out of that cash value, and once a year it credits interest based partly on how a stock market index performed, within a cap and above a floor. Whether the cash value grows, and whether the policy lasts, comes down to a race between those charges and those credits.

This calculator runs that race so you can watch it. It is an educational estimate, not an illustration. It does not describe any real policy. Real policies differ in charges, crediting and design, and only the insurance company can produce an illustration for a specific product. When you are ready to look at one, ask for a carrier illustration, including the guaranteed column, and compare it with what you see here. Our guide to reading an IUL illustration walks through one page by page.

How to use the IUL cash value calculator

• Start with you. Enter your age (18 to 75), sex and health class. These pick the mortality table behind the cost of insurance.
• Enter the premium plan. The yearly premium and how many years you plan to pay it.
• Set the death benefit. A larger death benefit means more insurance and higher charges every year. Policies built mainly for cash value use the lowest death benefit that stays under the MEC limit, and the results show an estimate of that figure for your premium.
• Choose an assumed average credit. The default is 6.0% and the maximum is 6.5%. This is an assumption, not a guarantee.
• Add loan income if you want. Pick an age to start, how many years, a yearly amount and a loan interest rate.
• Leave the charge assumptions alone, or adjust them. The defaults are listed in the table further down, with the range each one allows.

Then read the results in this order: the three-column summary, any lapse warning, the MEC check, the chart, and the year-by-year tables for each column.

The three columns

Life insurance illustrations show more than one set of numbers, and this calculator copies that structure.

• Illustrated. Your assumed credit every year, with current charges. This is the optimistic case, and it is the one sales material tends to put first.
• Midpoint. Half your assumed credit, with every non-guaranteed charge halfway between the current charge and the guaranteed maximum. That is how the NAIC Life Insurance Illustrations Model Regulation defines the midpoint column: credited rates and charges at the average of the guaranteed and illustrated scales.
• Guaranteed. A 0% credit every year, with the highest charges the contract allows: cost of insurance at 100% of the 2017 CSO table, the maximum premium load and the maximum policy fee. This is the floor of what the contract promises.

The 0% floor on an index account protects your credits from going negative. It does not protect the cash value. Charges still come out in a year that credits 0%, which is exactly why the guaranteed column shrinks and, in many designs, lapses. The model regulation also requires an illustration to show the year coverage would end on each basis. The calculator does the same.

How the math works, step by step

The calculator works in monthly steps from your age today to the age you pick (100 by default, up to 120). For each column, every policy year goes like this:

1. Premium in. On the policy anniversary, your premium is added to the cash value after the premium load comes off. A 6% load on a $12,000 premium leaves $11,280.
2. Loan out, if you chose loan income. The loan is paid to you on the anniversary. The cash value stays where it is and a separate loan balance starts.
3. Twelve monthly deductions. Each month the calculator takes out the policy fee, the per-$1,000 charge (for the years it applies) and the cost of insurance.
4. Twelve monthly credits. What remains is credited at the monthly equivalent of your annual rate, so a full year compounds to exactly that rate.
5. Loan interest. At the end of the year, interest at the loan rate is added to the loan balance.
6. Values. The surrender value is the cash value minus any surrender charge and any loan balance. The death benefit shown is the larger of the face amount and the corridor amount, minus any loan.

Cost of insurance

Cost of insurance is the price of the pure insurance part of the policy. It is charged only on the net amount at risk: the death benefit minus the cash value, never below zero. The insurance company is only risking the difference, because your own cash value covers the rest.

Each year's charge is: (net amount at risk ÷ 1,000) × (the table's death rate per 1,000 at your age) × the cost of insurance percentage. The calculator applies it in twelve monthly pieces.

Here is the first year of the default example. A 35-year-old preferred male with a $400,000 death benefit and about $11,000 of cash value has roughly $389,000 at risk. The current-basis table rate at 35 is 0.89 per 1,000, and the default cost of insurance setting is 60% of it. That works out to about $208 for the year. At 65 the same table rate is 7.83 per 1,000, almost nine times higher, which is why cost of insurance matters more as you age. Our guide to IUL cost of insurance covers what drives these charges on real policies.

The mortality tables

The death rates come from the 2017 Commissioners Standard Ordinary (CSO) tables, the industry tables adopted through the NAIC for life insurance issued since 2020 and the usual basis for a policy's guaranteed maximum cost of insurance. The calculator uses the ultimate rates (the rates that apply once the effect of underwriting has worn off), on an age-nearest-birthday basis, for ages 18 to 120. The tables were downloaded from the Society of Actuaries' mortality table database, and the table numbers are listed in the sources below.

• Guaranteed basis: the 2017 Loaded CSO Smoker Distinct tables, nonsmoker or smoker, male or female (tables 3291 to 3294). The guaranteed column charges 100% of these rates.
• Current basis: the 2017 Loaded CSO Preferred Structure tables for your class (tables 3300, 3301, 3303, 3304, 3306 and 3308). Preferred non-tobacco uses the Preferred table, standard non-tobacco uses the Residual Standard nonsmoker table, and tobacco uses the Residual Standard smoker table. The illustrated column charges your cost of insurance percentage of these rates, and never more than the guaranteed rate at that age.

These are "loaded" tables: they include a margin on top of expected deaths. Current cost of insurance on real policies is usually below the loaded table, which is why the default is 60%. That figure is our assumption, not a carrier's rate. Current rates are not guaranteed: an insurance company can raise them on existing policies, up to the guaranteed maximum in the contract.

The corridor

Federal tax law only treats a policy as life insurance if the death benefit stays far enough above the cash value. For policies that use the guideline premium test, IRC Section 7702(d) sets that minimum as a percentage of the cash value, based on the insured's age at the start of the policy year:

The calculator applies this every month. When the cash value is large enough, the death benefit rises to the corridor amount and the cost of insurance is charged on the larger amount at risk. In the default example, the illustrated column's death benefit at 65 is about $897,000, well above the $400,000 face amount, because the cash value has grown past the corridor.

Surrender charges and the lapse test

Most IUL policies charge a fee if you surrender in the early years. The calculator uses a simple assumption: a charge of $10 per $1,000 of face amount in year one ($4,000 on $400,000), falling evenly to zero after year ten. Real surrender charge schedules vary widely by product, age and face amount.

A policy lapses when it can no longer pay its own charges. The calculator marks a column as lapsed in the month its surrender value, after any loan, reaches zero. During the surrender charge years, with no loan outstanding, it uses the cash value itself instead, because some policies keep coverage in force in the early years as long as a minimum premium is paid. A lapse ends the coverage, and a lapse with a loan outstanding can create a tax bill.

Retirement income from policy loans

Many people who look at IUL are interested in the cash value as a source of retirement income. That income usually comes from policy loans, not withdrawals, and this calculator models one common kind.

• Participating (indexed) loan. The insurance company lends you money using your cash value as collateral. Your full cash value keeps earning the index credit, while the loan balance grows at the loan interest rate. If the credit beats the loan rate, the gap works for you. If it falls short, the gap works against you, and in a 0% year the whole loan interest is a cost.
• Loan limits. A new loan can only be as large as the surrender value, less a year of loan interest. If your planned loan no longer fits, the policy cannot support the income. The calculator pays out what is left and shows the column lapsing that year, the way an illustration flags it.

Here is what that looks like with the default inputs, as a hypothetical example. The same 35-year-old takes $40,000 a year in loans from 65 for 20 years, at a 5% loan rate:

• Illustrated column (6.0%). The policy stays in force. By 85 the loan balance is about $1.39 million and the surrender value after the loan is about $910,000.
• Midpoint column (3.0%). The policy lapses at 74, after paying about $364,000 of loan income.
• Guaranteed column (0%). The policy lapses at 69, after four loans of $40,000.

Drop the assumed credit from 6.0% to 5.0% and keep everything else the same: the illustrated column still stays in force to 100, but the surrender value left after loans at 85 falls to about $151,000. Small changes in the credit make big differences once loans start, which is why it pays to test more than one rate.

When loan income is tax-free, and when it is not

Policy loans are generally not taxed as income while the policy stays in force and is not a MEC. The loan is a debt against the policy, not a distribution. If the policy lapses or you surrender it with a loan outstanding, the loan that is wiped out counts toward the amount you receive, and any gain over the premiums you paid is taxable income that year, even though no cash reaches you. A lapse late in life with a large loan can produce a large tax bill with nothing to pay it from. The tax rules are in IRC Section 72(e); our IUL loans guide covers them in more detail.

The MEC estimate

A modified endowment contract (MEC) is a life insurance policy that took in too much premium too fast. Under IRC Section 7702A, a policy becomes a MEC if the premiums paid at any point in the first seven years add up to more than the sum of the "7-pay premiums" for that many years. A MEC still pays a death benefit that is generally income-tax-free, but loans and withdrawals are taxed gains first, and before 59 and a half they can carry a 10% penalty.

The 7-pay premium is the level yearly premium that would fully pay up the policy's benefits after seven payments. The calculator estimates it this way:

• It works out the net single premium for a level death benefit equal to your face amount, with an endowment at 100, the latest deemed maturity date Section 7702 allows.
• It uses the 2017 CSO Smoker Distinct table for your sex and tobacco status, annual steps, and deaths paid at the end of the year.
• It uses 2% interest. Congress set 2% for contracts issued in 2021; after that the rate follows a formula in Section 7702(f)(11) that resets only when the prescribed valuation interest rate changes. We have not confirmed the rate for policies issued in 2026, so treat the result as approximate.
• It divides that single premium by the value of seven yearly payments, counting the chance of death during those years.

For the default example, the estimate comes to about $60 per $1,000 of death benefit, or about $24,000 a year on $400,000. The $12,000 premium is well under it. The calculator also shows the smallest death benefit that would keep your premium under the estimate, about $199,000 in the default case. Policy designs built for cash value tend to sit close to that line.

This is an estimate. Real 7-pay calculations use the insurance company's exact mortality basis and product details, include riders, and restart after certain changes to the policy. Separately, the guideline premium test in Section 7702 limits total premiums over the life of the policy, and this calculator does not check it. The insurance company tests every premium against both limits and will refuse or return premium that would break them.

Every assumption, in one place

The midpoint column uses the average of the current and guaranteed values for the premium load, the policy fee and the cost of insurance rate. The default charges are round numbers chosen to sit in a plausible middle. They are not any insurance company's figures, and a real product can be cheaper or more expensive on each line.

The limits of this tool

A simple model is easier to follow, and it leaves things out. Know what they are before you rely on any number here.

• The same credit every year. Real index credits change every year, with caps, participation rates and a floor, and some years credit 0%. A steady average hides sequence risk: a run of low years right when loans begin can do far more damage than the average suggests.
• No product features. No index bonuses, multipliers, persistency credits or fixed account. No riders, including no-lapse guarantees, overloan protection or living benefits. No increasing death benefit option.
• Monthly credits. Real index accounts credit once a year at the end of each segment. The calculator spreads the credit monthly so a year compounds to your rate.
• Ultimate mortality only. Real policies often use lower "select" rates in the first years after underwriting. Using ultimate rates makes the early cost of insurance here a little high.
• One cost of insurance percentage. Real current cost of insurance scales vary by age and duration, and insurance companies can raise them on existing policies, up to the guaranteed rates.
• Simple surrender charge and lapse test. Real schedules and grace periods vary by product.
• No premium limits and no taxes. The calculator does not apply the guideline premium test and does not calculate income tax. The MEC figure is an approximation.
• Participating loans only. It does not model fixed-rate loans, withdrawals up to basis, or loan repayment.

Some of these would help a real policy and some would hurt it. The steady average credit is the one most likely to make the illustrated column look better than a real policy will perform.

Why we built it this way

IUL illustrations are regulated because the illustrated column can look very good on paper. The NAIC's Actuarial Guideline 49-A limits the rate an insurance company can illustrate. The model regulation requires the guaranteed and midpoint columns and the year coverage ends on each. We think the most useful thing a calculator can do is make those three columns and those lapse ages easy to see side by side, with every charge visible year by year.

If you already own a policy, an in-force illustration from your insurance company shows the same three columns for your actual contract. If you are considering one, look at a max-funded IUL design and ask for an illustration at a credit rate you would be comfortable planning on, not just the maximum.