What underfunding means
An IUL is underfunded when premiums aren’t enough to support the policy’s design over time. Monthly charges and cost of insurance consume most of each payment, leaving little to build cash value.
Why it matters
Cost of insurance generally rises with age. If cash value isn’t large enough to absorb those costs later, the policy may require much higher premiums or lapse. A lapse with an outstanding loan may also create taxable income.
Warning signs
- Cash value that barely grows, or declines, year after year
- An in-force illustration showing a lapse before your target age
- Paying only a “minimum” premium on a policy designed for accumulation
- Growing loan balances
Options if you’re off track
Depending on the policy, options may include increasing premiums, reducing the death benefit, changing the death benefit option, reallocating crediting strategies or, in some cases, exchanging to a different policy. Every option has trade-offs and should be reviewed carefully.
Get a review
An in-force illustration and policy review can show where your IUL is headed. Reviewing a policy doesn’t mean anything was done wrong — it simply gives you current information.
FAQs
Can an underfunded IUL be fixed?
Often there are options, such as adjusting premiums or the death benefit, but each has trade-offs and depends on the policy.
How often should I review my IUL?
Many advisors suggest an annual review with an updated in-force illustration.