IUL vs. S&P 500 Index Fund
Does an Indexed Universal Life policy actually outperform just investing in the market? Apply the cap rate the agent didn't lead with to every decade of market history.
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⚠️ The cap rate is the most aggressively obscured variable in consumer finance. At a 9% cap, you keep none of the market's gains above 9%, including dividends. In years like 2013 (+32.6% total return), 2019 (+31.5%), and 2021 (+28.7%), your credited return was capped at 9% while an index fund investor kept every percent.
S&P Index Fund Final Value
$301,191
5.9% CAGR on premiums paid
IUL Policy Value
$170,393
2.9% CAGR on premiums paid
S&P Advantage
$130,797
Over 20-year holding period
S&P Wins in History
100%
Of all 20-year windows since 1928
Expected 20-Year Outcome (10% Assumed Market Return)
S&P Index Fund
Final value
$301,191
Total premiums
$96,000
Total fees paid
$618
Effective CAGR
5.9%
IUL Policy
Final value
$170,393
Total premiums
$96,000
Policy fees + COI
$38,943
Effective CAGR
2.9%
Historical 20-Year Windows (All Periods Since 1928)
| Start Year | End Year | IUL Value | S&P Value | IUL Return (CAGR) | S&P Return (CAGR) | Winner |
|---|---|---|---|---|---|---|
| 1928 | 1947 | $98,473 | $224,173 | 0.1% | 4.3% | S&P |
| 1929 | 1948 | $99,476 | $227,157 | 0.2% | 4.4% | S&P |
| 1930 | 1949 | $104,780 | $259,847 | 0.4% | 5.1% | S&P |
| 1931 | 1950 | $109,924 | $325,398 | 0.7% | 6.3% | S&P |
| 1932 | 1951 | $114,820 | $378,381 | 0.9% | 7.1% | S&P |
| 1933 | 1952 | $119,364 | $400,423 | 1.1% | 7.4% | S&P |
| 1934 | 1953 | $113,245 | $349,745 | 0.8% | 6.7% | S&P |
| 1935 | 1954 | $117,584 | $477,952 | 1.0% | 8.4% | S&P |
| 1936 | 1955 | $121,430 | $559,554 | 1.2% | 9.2% | S&P |
| 1937 | 1956 | $121,944 | $550,315 | 1.2% | 9.1% | S&P |
| 1938 | 1957 | $116,173 | $466,201 | 1.0% | 8.2% | S&P |
| 1939 | 1958 | $120,175 | $595,546 | 1.1% | 9.6% | S&P |
| 1940 | 1959 | $124,630 | $609,293 | 1.3% | 9.7% | S&P |
| 1941 | 1960 | $118,417 | $555,816 | 1.1% | 9.2% | S&P |
| 1942 | 1961 | $121,553 | $621,636 | 1.2% | 9.8% | S&P |
| 1943 | 1962 | $113,680 | $488,081 | 0.8% | 8.5% | S&P |
| 1944 | 1963 | $116,280 | $513,038 | 1.0% | 8.7% | S&P |
| 1945 | 1964 | $119,189 | $518,561 | 1.1% | 8.8% | S&P |
| 1946 | 1965 | $122,438 | $509,037 | 1.2% | 8.7% | S&P |
| 1947 | 1966 | $115,650 | $412,738 | 0.9% | 7.6% | S&P |
| 1948 | 1967 | $118,484 | $445,268 | 1.1% | 8.0% | S&P |
| 1949 | 1968 | $121,172 | $425,356 | 1.2% | 7.7% | S&P |
| 1950 | 1969 | $113,454 | $333,218 | 0.8% | 6.4% | S&P |
| 1951 | 1970 | $110,042 | $294,446 | 0.7% | 5.8% | S&P |
| 1952 | 1971 | $113,057 | $291,704 | 0.8% | 5.7% | S&P |
| 1953 | 1972 | $116,427 | $303,353 | 1.0% | 5.9% | S&P |
| 1954 | 1973 | $110,263 | $230,729 | 0.7% | 4.5% | S&P |
| 1955 | 1974 | $103,951 | $151,577 | 0.4% | 2.3% | S&P |
| 1956 | 1975 | $107,253 | $188,030 | 0.6% | 3.4% | S&P |
| 1957 | 1976 | $110,944 | $214,334 | 0.7% | 4.1% | S&P |
| 1958 | 1977 | $105,252 | $184,736 | 0.5% | 3.3% | S&P |
| 1959 | 1978 | $105,099 | $177,838 | 0.5% | 3.1% | S&P |
| 1960 | 1979 | $108,551 | $194,951 | 0.6% | 3.6% | S&P |
| 1961 | 1980 | $112,406 | $237,368 | 0.8% | 4.6% | S&P |
| 1962 | 1981 | $106,215 | $209,631 | 0.5% | 4.0% | S&P |
| 1963 | 1982 | $109,845 | $235,779 | 0.7% | 4.6% | S&P |
| 1964 | 1983 | $112,922 | $264,802 | 0.8% | 5.2% | S&P |
| 1965 | 1984 | $112,499 | $261,649 | 0.8% | 5.1% | S&P |
| 1966 | 1985 | $116,281 | $319,728 | 1.0% | 6.2% | S&P |
| 1967 | 1986 | $120,496 | $354,319 | 1.1% | 6.7% | S&P |
| 1968 | 1987 | $119,742 | $346,311 | 1.1% | 6.6% | S&P |
| 1969 | 1988 | $123,756 | $375,735 | 1.3% | 7.1% | S&P |
| 1970 | 1989 | $128,222 | $459,351 | 1.5% | 8.1% | S&P |
| 1971 | 1990 | $121,199 | $411,853 | 1.2% | 7.6% | S&P |
| 1972 | 1991 | $124,671 | $490,715 | 1.3% | 8.5% | S&P |
| 1973 | 1992 | $125,673 | $485,853 | 1.4% | 8.4% | S&P |
| 1974 | 1993 | $129,669 | $496,005 | 1.5% | 8.6% | S&P |
| 1975 | 1994 | $123,759 | $457,592 | 1.3% | 8.1% | S&P |
| 1976 | 1995 | $126,517 | $540,485 | 1.4% | 9.0% | S&P |
| 1977 | 1996 | $129,593 | $585,562 | 1.5% | 9.5% | S&P |
| 1978 | 1997 | $133,018 | $695,486 | 1.6% | 10.4% | S&P |
| 1979 | 1998 | $135,601 | $776,855 | 1.7% | 11.0% | S&P |
| 1980 | 1999 | $138,015 | $807,592 | 1.8% | 11.2% | S&P |
| 1981 | 2000 | $129,087 | $634,653 | 1.5% | 9.9% | S&P |
| 1982 | 2001 | $121,113 | $493,488 | 1.2% | 8.5% | S&P |
| 1983 | 2002 | $112,957 | $332,278 | 0.8% | 6.4% | S&P |
| 1984 | 2003 | $115,204 | $368,886 | 0.9% | 7.0% | S&P |
| 1985 | 2004 | $117,723 | $356,432 | 1.0% | 6.8% | S&P |
| 1986 | 2005 | $114,903 | $322,188 | 0.9% | 6.2% | S&P |
| 1987 | 2006 | $117,541 | $327,405 | 1.0% | 6.3% | S&P |
| 1988 | 2007 | $115,914 | $305,574 | 0.9% | 6.0% | S&P |
| 1989 | 2008 | $108,911 | $173,639 | 0.6% | 3.0% | S&P |
| 1990 | 2009 | $111,960 | $194,342 | 0.8% | 3.6% | S&P |
| 1991 | 2010 | $115,368 | $202,263 | 0.9% | 3.8% | S&P |
| 1992 | 2011 | $110,444 | $184,169 | 0.7% | 3.3% | S&P |
| 1993 | 2012 | $113,462 | $194,073 | 0.8% | 3.6% | S&P |
| 1994 | 2013 | $116,563 | $231,694 | 1.0% | 4.5% | S&P |
| 1995 | 2014 | $120,002 | $237,102 | 1.1% | 4.6% | S&P |
| 1996 | 2015 | $114,150 | $214,368 | 0.9% | 4.1% | S&P |
| 1997 | 2016 | $117,309 | $219,251 | 1.0% | 4.2% | S&P |
| 1998 | 2017 | $120,835 | $246,608 | 1.2% | 4.8% | S&P |
| 1999 | 2018 | $114,463 | $222,837 | 0.9% | 4.3% | S&P |
| 2000 | 2019 | $118,656 | $279,012 | 1.1% | 5.5% | S&P |
| 2001 | 2020 | $123,322 | $316,338 | 1.3% | 6.1% | S&P |
| 2002 | 2021 | $127,502 | $386,171 | 1.4% | 7.2% | S&P |
| 2003 | 2022 | $120,230 | $297,953 | 1.1% | 5.8% | S&P |
| 2004 | 2023 | $122,935 | $321,191 | 1.2% | 6.2% | S&P |
| 2005 | 2024 | $125,956 | $371,386 | 1.4% | 7.0% | S&P |
The cap rate mattered most in high-return decades like the 1990s (+432% total return). In those periods, IUL policyholders received capped credits while index investors kept the full run. The 9% cap means any year the market returns more than 9%, roughly half of all years historically, you give up that excess to the insurance company.
Year-by-Year Expected Growth
| Year | IUL Balance | S&P Balance | IUL Cum. Fees+COI | S&P Cum. Fees | COI This Year |
|---|---|---|---|---|---|
| 1 | $3,793 | $5,278 | $1,320 | $1 | $960 |
| 2 | $7,875 | $11,083 | $2,688 | $4 | $1,008 |
| 3 | $12,270 | $17,466 | $4,106 | $9 | $1,058 |
| 4 | $17,003 | $24,485 | $5,578 | $16 | $1,111 |
| 5 | $22,101 | $32,204 | $7,105 | $25 | $1,167 |
| 6 | $27,594 | $40,692 | $8,690 | $36 | $1,225 |
| 7 | $33,515 | $50,027 | $10,336 | $49 | $1,286 |
| 8 | $39,898 | $60,291 | $12,047 | $66 | $1,351 |
| 9 | $46,783 | $71,579 | $13,826 | $85 | $1,418 |
| 10 | $54,209 | $83,991 | $15,675 | $108 | $1,489 |
| 11 | $62,223 | $97,641 | $17,599 | $135 | $1,564 |
| 12 | $70,873 | $112,652 | $19,600 | $166 | $1,642 |
| 13 | $80,212 | $129,158 | $21,684 | $201 | $1,724 |
| 14 | $90,298 | $147,309 | $23,855 | $241 | $1,810 |
| 15 | $101,193 | $167,270 | $26,115 | $287 | $1,901 |
| 16 | $112,964 | $189,220 | $28,471 | $338 | $1,996 |
| 17 | $125,686 | $213,358 | $30,927 | $397 | $2,096 |
| 18 | $139,439 | $239,902 | $33,487 | $462 | $2,200 |
| 19 | $154,310 | $269,092 | $36,157 | $535 | $2,310 |
| 20 | $170,393 | $301,191 | $38,943 | $618 | $2,426 |
IUL does what it claims: the floor protects you in down years (2008: S&P −38%, IUL: 0%). The question is whether that protection is worth the cap in up years and the compounding cost of fees and COI. Historically, the answer is no, but your specific illustration may differ. Always request a policy illustration run at 0%, 4%, and the maximum illustrated rate before deciding.