Indexed universal life insurance is a permanent life insurance funding that earns interest based on the the stock market’s returns. Since it’s a universal life, policyholders can change payments and benefits as needed. Like other forms of permanent life insurance, IUL offers a death benefit and a cash account. The death benefit is determined at the beginning of the policy. The cash account grows based on the performance of a stock index.

A stock index, such as the S&P 500, Barclays, or Dow Jones Industrial Average, is a way to track a group of stocks. Insurance companies pick one or more of these and pay interest to policyholders based on the index’s performance — as value goes up, the account earns interest. If the index drops, the account earns less or nothing.

The amount you can earn is subject to “floors” and “indexes” to help minimize losses. The floor is the lowest your account rate can go and is usually guaranteed for the life of the policy, but is often set at 0%.‍