Life insurance with cash value: what happens when the market falls?

It protects your family and may build cash value. A falling index can mean zero interest credited, but policy charges still apply, so the cash value can fall.

Answer a few questions, then pick a time for a free call with Derrick about the costs, the risks, and the fit. No obligation.A few questions, then a free call with Derrick. No obligation.

Your answers go to Derrick Robison, a licensed insurance agent with Porch Light Coverage, to prepare for your call.

The floor on index credits. A year the index falls credits zero, not a negative number. The 0% floor applies to index credits only. Policy fees and charges still come out of the cash value every year, so the cash value can go down.

Your money isn’t invested in the market. The policy credits interest based on how an index does, within limits the carrier sets.

What a cap and a floor do to the interest credited

Grey is what an index might do in a year. Amber is the interest a policy with a cap and a floor would credit for that year. A big gain stops at the cap. A fall credits zero instead of going below the line. In between, the credit follows the index, or a set share of it if the participation rate is less than full.

Interest credited before policy charges. This is not your cash value.

Policy charges come out every year and can reduce your cash value, even in a year that credits zero.

What the index did Interest credited, before charges A diagram of how crediting works, drawn with invented shapes. It is not index data, not any carrier’s product, and not a projection of results. Real caps and participation rates are set by each carrier and can change. Index credits typically don’t include stock dividends.

Continue the questions

The three terms that decide what gets credited

Cap: The most the policy can credit in a period, however well the index does. Carriers set it and can change it.
Participation rate: How much of the index’s gain counts toward your credit, before the cap applies. Carriers set it and can change it.
Floor: The least an index credit can be, usually 0%. The 0% floor applies to index credits only. Policy fees and charges still come out of the cash value every year, so the cash value can go down.

What the floor doesn’t do

It doesn’t stop the cash value from going down. The policy still pays for the insurance itself and its fees every year, so a year with a 0% credit can still end lower than it started. It also doesn’t give you the market’s best years in full. That’s the trade. Derrick will show you both sides, in the carrier’s own illustration, before you decide anything.

How it works from here

01Answer a few questions
About two minutes. No bank or card details.
02Pick a time to talk
You choose the slot on the calendar that comes up.
03Look at real numbers
Derrick runs a carrier illustration for your age and health, with the guaranteed and non-guaranteed columns side by side.

Your agent: Derrick Robison
Role: Licensed Insurance Advisor · Porch Light Coverage
On the call: The trade-offs first, then the upside.

Fair questions

What is indexed universal life, in plain English?

It’s permanent life insurance: it pays your family a death benefit, and part of each premium also goes into a cash value. That cash value earns interest based on how a market index such as the S&P 500 does, up to a limit (the cap), and the credit can’t go below zero in a down year (the floor). Policy fees and charges still come out every year, so the cash value itself can go down. Your money isn’t invested in the market itself.

What’s the catch?

There are real costs. The policy charges for the insurance itself plus fees, and those come out of the cash value every year, including years the index credits zero. Surrender charges apply if you cancel in the early years, and the cap limits how much of a strong year you get. The cost of the insurance generally rises as you age, so a policy that isn’t funded enough can lapse. IUL usually works best for people who can keep paying for many years. A good agent tells you all of this up front.

How does borrowing from the policy work?

Once there’s enough cash value, you can borrow against it. Loans are generally not taxed as income while the policy stays in force and isn’t a modified endowment contract (MEC). But a loan reduces the cash value and the death benefit, it charges interest, borrowing too much can cause the policy to lapse, and if it lapses with a loan outstanding you can owe taxes. It needs to be managed, which is part of what your agent is for.

Wouldn’t term life be cheaper?

Usually, yes, for the same death benefit. Term covers a set number of years and builds no cash value. IUL costs more because it’s built to last your whole life and to build cash value. For some people term is the better fit, and Derrick will say so if that’s you.

Why do you need my phone number?

Because an honest answer depends on your age, health, state, and what you want the policy to do, and the real numbers come from a carrier illustration Derrick runs for you. Derrick goes over that with you on a short call, at a time you pick.

What does it cost to find out?

Nothing. There’s no cost to see your options and no obligation to buy. Agents are paid by the carrier if you choose to take a policy.

Talk through your costs and options with Derrick

Start the questions

Indexed universal life (IUL) insurance is a life insurance policy. It is not an investment, a security, a savings account, or a retirement plan, and it does not invest directly in the stock market or in any index. It is not a bank product and is not FDIC insured. Interest credited to the cash value is linked to the performance of a market index and is limited by caps, participation rates, and spreads set by the issuing carrier, which can change over time. The 0% floor applies to index interest credits only: the policy’s cost of insurance, fees, and other charges continue to be deducted and can reduce the cash value, including in years when the index credit is zero. Policy loans accrue interest. Loans and withdrawals reduce the cash value and the death benefit and can cause the policy to lapse. Loans are generally not taxed as income as long as the policy remains in force and is not a modified endowment contract (MEC); withdrawals of more than the premiums paid in are generally taxable; and if the policy lapses or is surrendered with a loan outstanding, taxes may be due. Surrender charges apply in the early years of the policy. Living-benefit (accelerated death benefit) riders are optional, may carry an additional cost, vary by carrier and state, require the insured to meet the rider’s qualifying conditions, and pay out by reducing the death benefit. Guarantees are backed by the claims-paying ability of the issuing insurance company. Coverage requires underwriting and is not guaranteed; premiums, benefits, and availability vary by age, health, state, and carrier. Any example on this page is hypothetical and for illustration only. It does not represent any actual policy, index, or crediting rate and is not a projection of future results; ask your agent for the carrier’s illustration, which shows both guaranteed and non-guaranteed values. Neither the agent nor this website provides tax or legal advice; talk with a tax professional about your situation. This is a solicitation of insurance; coverage is offered through licensed insurance agents/producers. This page is marketing by an independent licensed insurance agent, not by an insurance company. This website is not affiliated with, endorsed by, or sponsored by Facebook or Meta Platforms, Inc., or any government agency. By submitting the form you agree to be contacted as described in the consent you provide.