IUL for Retirement: Everything Expats Should Know

In this guide, we’ll explore how IUL can supplement, rather than replace, core pension or superannuation savings by discussing whether and how to use IUL insurance for retirement.

We’ll explain its key principles, advantages, and drawbacks and highlight jurisdiction-specific considerations that expats should understand before relying on IUL for retirement income or estate planning.

What Is IUL Insurance and How Does It Work?

Indexed universal life (IUL) insurance is a type of permanent insurance coverage that combines a death benefit with a cash value component.

The cash account’s growth is usually tied to the performance of a selected stock market index via a crediting formula, although predetermined floors and caps control its value fluctuations. Some IUL policies also offer a fixed interest rate that grows your money steadily.

While also serving as an instrument for accumulating wealth, IUL insurance primarily provides financial protection to your loved ones after your death.

When you pass away, your beneficiaries will receive a death benefit that is generally income-tax-free in many jurisdictions, though estate or inheritance taxes may still apply depending on residence, domicile, and ownership structure.

Therefore, premiums paid into an IUL policy cover:

1. Life insurance costs (death benefit, administrative fees, etc.)
2. Cash value account

Due to the IUL policy’s flexible premium nature, you are in control of how much of your money is funnelled into a cash account. Most insurers offer several index options to tie the cash value to, and the most popular ones include:

While the cash account’s value is linked to the index’s performance, your assets aren’t directly invested in the index itself.

Instead, the insurer credits interest to your policy based on index movements within the agreed caps and floors. This means that negative index returns won’t reduce the credited interest rate, although ongoing policy charges and the cost of insurance can still reduce your overall cash value.

What Is the Cost of an IUL Insurance Policy?

Like with other types of life insurance, the exact cost of one’s IUL policy depends on factors such as:

1. Gender: Women typically have lower premiums because their life expectancy is longer.
2. Age: The insurance premium increases as you get older because you’re at a higher risk of health problems, and your life expectancy shortens.
3. Coverage amount: The higher the coverage amount, the higher the premium.
4. Smoking status: Life insurance premiums are higher for smokers because their life expectancy is shorter than non-smokers’.
5. Overall health: Individuals suffering from pre-existing health conditions typically pay a higher premium when setting up their IUL policy.
6. Family health history: Some insurance companies may charge higher premiums to individuals whose family members have suffered from or passed away due to specific health problems such as cancer, diabetes, or heart disease.

Since IUL has an investment component, the attached costs and fees are typically more complex than those in basic life insurance policies that offer only death benefits. The table below summarises the common fees of setting up and managing IUL:

Considering all the aforementioned expenses, policy costs can vary greatly. Premium levels depend on age, health, jurisdiction, currency, policy size, and insurer pricing.

For illustration only, a healthy, non-smoking 40-year-old might pay several thousand US dollars per year for a policy providing roughly USD 500,000 of coverage; however, actual figures vary by insurer, currency, and country of residence.

UK-based IULs usually require minimum annual premiums starting around USD 10,000–15,000 depending on insurer and structure, but these figures vary widely and should be verified through a regulated adviser.

Because IUL pricing and policy structures differ across markets, expats should always compare quotes from insurers licensed in their country of residence and review projected internal rates of return after all charges and currency effects.

The Pros and Cons of IUL for Retirement

Understanding the pros and cons of IUL can help you decide whether to include this type of insurance in your retirement plans.

The Pros of IUL Policies

The key advantages of IUL insurance policies are:

• Flexible premiums: While certain limitations apply, the policyholder can adjust the amount and frequency of their policy payments. The flexibility ensures you can pay lower premiums if you endure financial hardship or invest more into your cash account to grow your wealth, provided minimum cost-of-insurance charges are met and the policy remains in force.
• Higher return potential: Because IUL policies have an index-linked crediting component, they offer greater potential for cash value growth compared to traditional, fixed-interest-rate universal life insurance policies. However, credited interest is subject to caps, participation rates, and policy charges, so long-term returns may be lower than direct equity investments.
• Floor rate: The IUL policy offers a guaranteed minimum interest rate, usually 0% or 1%, which protects the index crediting rate from negative returns, although ongoing policy fees and insurance costs can still reduce your total cash value.
• Tax benefits: The cash value grows tax-deferred in many jurisdictions, and the loans against the policy may be accessed on a tax-efficient basis if the policy retains its qualifying status and remains in force. An IUL insurance also provides a death benefit that is generally income-tax-free for beneficiaries, but local inheritance or estate taxes can still apply depending on residence and domicile.
• No cap on contributions: Premiums are flexible and can often be high, but tax and product rules still impose limits. Overfunding a policy may change its tax treatment (for example, creating a Modified Endowment Contract in the U.S. or a non-qualifying policy in the UK).
• Easy withdrawals: You can withdraw the accumulated cash value from your policy whenever a need arises, typically through withdrawals or policy loans. These reduce the death benefit and, in some jurisdictions, may trigger tax if the policy lapses or is surrendered.

The Cons of IUL for Retirement

IUL comes with several drawbacks expats should consider before adding it to their retirement plan:

• Limited accumulation percentages: Insurers often set limits on the maximum increases in cash value—usually 8% to 12%—thus limiting your gains regardless of the performance of the associated stock market index.
• Tax implications: If a policy is cancelled, any gains may be taxable, and unpaid policy loans can also create a tax liability if the policy lapses or upon death. For UK residents or returning expats, many IUL contracts are classed as “non-qualifying life policies” under HMRC’s chargeable-event rules. This means that making withdrawals or cashing in the policy could trigger a taxable gain. Australian residents and returning expats should likewise compare IUL outcomes with superannuation contributions and withdrawals, as Australian tax law generally treats offshore life-insurance policies differently from superannuation funds. Policy gains or withdrawals may be assessable for tax depending on residency status, policy structure, and timing.
• Complexity: IUL has a complex structure and pricing, and it’s crucial to understand every element before setting up your policy to avoid unnecessary tax charges or unexpected outcomes. For this reason, seek advice from regulated financial advisers familiar with cross-border tax and residency issues, who will explain all the intricacies related to IUL insurance and guide you through the process of purchasing and managing the policy.
• Participation rate: The participation rate determines how much of an index’s gain is credited to your policy, and it can be adjusted by the insurer at any time. For instance, if the participation rate is 50%, a 10% index fund growth results in a 5% cash account growth, meaning your cash account won’t grow at the same rate as the index fund does (in addition to being capped at 8–12%).

Can Expats Benefit From IUL Insurance?

IUL policies are appreciated by high-net-worth individuals and high earners because they allow flexible premium funding, often at higher levels than standard life cover, although insurers and tax rules still impose limits.

They’re also useful for expats seeking to supplement their retirement and estate planning with life insurance that includes both cash-value accumulation and a death benefit.

They are also suitable for expats who wish to ensure:

• Simplified or remote application processes, which some insurers offer, although medical underwriting requirements still vary by age, health and jurisdiction.
• That their beneficiaries can receive the death benefit with favourable tax treatment, subject to local inheritance, estate or succession laws.
• Reduced exposure to equity-market downturns through index-linked crediting formulas that include floors, while recognising that policy fees and insurance costs can still reduce cash value.
• Diversification of their overall portfolio by combining an insurance-based product with other asset classes such as equities or bonds.
• Access to additional protection through riders—such as accelerated death benefits or critical-illness options—that may provide financial support in case of terminal or severe illness.

Whether an IUL policy fits your retirement plan depends on your goals, health, family situation, and long-term financial plans. If you’re considering purchasing an IUL policy but aren’t sure you’ll benefit from it, consult a regulated financial adviser with cross-border experience.

Specialist expat firms such as Titan Wealth International can assess your circumstances and recommend suitable international life-insurance options, ensuring appropriate jurisdictional coverage and tax structuring.

How Does IUL Differ From Other Universal Life Insurance Types?

Apart from IUL, there are other types of universal life insurance, with the following three being some of the most popular ones:

1. Traditional universal life insurance: A standard life insurance policy with a death benefit and cash account growing at a fixed interest rate, usually set between 1% and 2%, declared periodically by the insurer.
2. Guaranteed universal life insurance: It involves fixed premiums and a guaranteed death benefit designed mainly for lifetime protection rather than cash-value growth. While its investment exposure is minimal, policyholders should note that guarantees depend on the insurer’s financial strength and the policy remaining in force.
3. Variable universal life insurance: This type of insurance includes a cash-value component that is invested directly in subaccounts (similar to mutual funds). As a result, it carries greater market risk and potential for higher returns, since policyholders are fully exposed to investment volatility and do not benefit from the loss protection offered by indexed or fixed universal life policies.

401(k) Vs. IUL: How Does IUL Compare with 401(k)s and Other Expat Pension Options?

When considering setting up an IUL for retirement, many expats wonder, “Is IUL better than 401(k)?” Both are tools for long-term savings and wealth transfer, but they differ in structure, purpose, and jurisdictional treatment.

If you are not a US taxpayer, it’s usually more relevant to compare IUL with your local or international pension vehicle—for example, a UK SIPP, Australian Superannuation account, or other offshore retirement plan.

The key IUL vs. 401(k) differences include:

What Is Better, IUL or 401(k)?

It’s impossible to give a one-size-fits-all answer because each product serves a different goal. If you prioritise tax-efficient investing and employer-matched contributions, a 401(k) (or equivalent pension/super plan) is generally more cost-effective.

If you’re focused on estate planning, long-term wealth preservation, and flexible access to funds, an IUL may complement your retirement strategy.

As a 401(k) (or other pension) and IUL insurance aren’t mutually exclusive, many high-income earners use both to:

• Diversify their savings and protection mix.
• Mitigate risk by blending market exposure with capital protection features.
• Provide liquidity and estate benefits for their family.

For expats, the key is coordination: assess tax treatment, insurer licensing, and portability between countries before combining products.

UK Expats – IUL vs SIPPs and Pensions

UK expats often compare IUL with Self-Invested Personal Pensions (SIPPs) or employer pensions.

SIPPs and UK-registered schemes benefit from tax relief on contributions and regulated investment choice, whereas IUL premiums are paid with after-tax income and do not qualify for UK pension tax relief.

However, IULs can be valuable as an offshore estate-planning and wealth-transfer tool.
Most offshore IULs are treated by HMRC as non-qualifying life policies or investment bonds, meaning withdrawals or surrender can trigger a chargeable event gain.

Death benefits are generally income-tax-free but may still fall within UK Inheritance Tax (IHT) unless held in trust.

For British expats, IULs can complement pensions by offering protection and liquidity outside the UK pension wrapper, but they should be structured carefully to avoid UK tax traps.

Australian Expats – Superannuation vs IUL

For Australians, superannuation remains the main tax-advantaged retirement vehicle.

Employer contributions and certain voluntary contributions receive concessional tax treatment, while IUL premiums are paid with post-tax income and do not attract super tax concessions.

Australian tax law (ATO TR 2003/10) treats gains on foreign life-insurance policies as assessable income if the policyholder is an Australian resident when the gain arises.

However, Australians living abroad long-term can use IUL as a supplementary structure—providing life cover, potential access to funds before retirement age, and offshore estate protection.

IULs are not replacements for superannuation but can complement them by offering liquidity, global coverage, and family protection. Always confirm residency and tax implications before funding.

UAE and International Hubs (Dubai, Singapore, Hong Kong)

In zero-income-tax jurisdictions like the UAE, IULs are popular among international professionals because of their flexible funding, estate-planning benefits, and portability.

Unlike employer pension plans, IULs are personally owned and continue if you relocate.
However, the local tax advantages may not apply if you later move to a country that taxes foreign policies (e.g. UK, Australia).

Policyholders should ensure their IUL provider is regulated in their jurisdiction (e.g. by the Dubai Insurance Authority or Monetary Authority of Singapore) and confirm which governing law applies to the contract.

For globally mobile expats, IUL offers protection and flexibility, but tax neutrality depends on future residency. Always plan with potential relocation in mind.

How IUL Fits with Expat Retirement Systems

Across jurisdictions, IULs differ from pension or superannuation systems in that they:

• Combine life cover and savings rather than pure retirement income.
• Use after-tax premiums, with possible tax-deferred or tax-efficient access later.
• Are portable across countries (subject to insurer licensing and tax).
• Can complement, but not replace, formal retirement schemes.

For expats, the essential step is coordination, understanding how your IUL interacts with your pension, super, or savings in each jurisdiction before committing to funding or withdrawals.