Term vs IUL

Term Life vs Indexed Universal Life (IUL)

IUL agents promise tax-free retirement income. The fees (3-5% per year) usually destroy the math vs buying term and investing the difference.

Verdict

For 95% of adults, term life + maxed Roth IRA / 401(k) beats IUL on every metric. IUL has a place only for ultra-high earners over $400K who have maxed every other tax-advantaged option AND understand the surrender charges.

Side-by-side comparison

 Term LifeIUL
Cost of $1M coverage (35yo)~$30/month~$700-900/month
Internal feesNone3-5% annually
Cap on equity upsideNoneOften 10-12% cap
Floor in down yearsN/A0% (no losses)
Surrender charge first 10 yearsNoneUp to 100% in year 1
Best for98% of households>$400K earners, after maxing IRAs/401(k)

Who should pick Term Life

Anyone who needs death-benefit coverage. Parents with young kids. Anyone whose net worth is under $5M. People who can max Roth IRA + 401(k) separately.

Who should pick IUL

Ultra-high earners over $400K who’ve already maxed all tax-advantaged accounts. Estate-planning situations needing permanent coverage. People who literally cannot save without forced premiums.

Related tools

Term vs Whole LifeCompare against another permanent option.Compound Interest CalculatorQuantify “invest the difference.”401(k) CalculatorShow the cheaper alternative.

Disclaimer. Comparison numbers depend on your tax bracket, state, and time horizon. Educational only — not personalized financial advice. See our Financial Disclaimer.

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