The Illustration Promised 6.8% a Year for 30 Years. Two Real Years Left His Account $9,673 Behind It.

9 min read · Last updated August 21, 2026

In this article

• What the cap, participation rate, and floor actually decide
• The charge that comes out no matter what the index did
• What the 2023 illustration rule actually restricts
• Two real years against the illustrated line
• What to ask before you keep paying into one
• Frequently asked questions

Arjun Mehta bought an indexed universal life policy in 2011, at 45, with a $500,000 death benefit and an illustration projecting 6.8% average annual growth for 30 years. In January 2025, reviewing two full policy years of actual annual statements against that same illustration, he found his account value $9,673 behind where the illustration said it would be, on a starting balance of $46,000. The index had not crashed. In one of the two years it was up.

What the cap, participation rate, and floor actually decide

An indexed universal life (IUL) policy does not invest your premium in the stock market. It credits interest based on how much a market index, usually the S&P 500, moved over a one-year period, then runs that number through three levers before it ever touches the account.

The participation rate sets what share of the index’s move counts at all. A 100% participation rate means the full move counts before anything else is applied. A 70% participation rate means only 70% of that move counts.

The cap rate sets the ceiling on what can be credited, no matter how high the index goes. If the cap is 9% and the index gains 14%, the account is still credited 9%. Insurers can and do change the cap on new business, and some can adjust it on in-force policies at renewal, inside limits set in the contract.

The floor sets the bottom. A 0% floor means a negative index year credits $0, never a negative number. Most IUL floors sit between 0% and 1%.

Run one real year through Arjun’s policy: cap 9%, participation 100%, floor 0%. The index gained 4.2%. Participation at 100% keeps the full 4.2%. It sits under the 9% cap, so nothing gets clipped. His account is credited 4.2% that year, on whatever balance the index-linked segment was holding.

The charge that comes out no matter what the index did

Every IUL policy is still a universal life policy underneath the index-crediting mechanics, and every universal life policy deducts a cost of insurance charge from the account, monthly, along with administrative and rider fees. The cost of insurance is the price of the actual death benefit that year. It is priced off your age, and it rises every year you age, whether or not the index moved at all.

The Texas Department of Insurance (TDI)’s consumer guide to life insurance states the mechanic plainly for universal life policies: “If your premiums are lower than the cost of insurance, the difference is taken from the cash value.” TDI adds the consequence: “If the cash value reaches zero, your policy could lapse.”

This is the part a 0% floor does not touch. A floor guarantees the interest credit will never go negative. It says nothing about the charge line. In a year the index is flat and the floor holds the credit at $0, the cost of insurance still comes out. The account can shrink in a year that, by the floor’s own promise, was not supposed to cost the policyholder anything.

Arjun’s policy deducted roughly $214 a month, $2,568 a year, in cost of insurance and administrative charges. That number was not zero in either of his two review years. It was not zero in the year the index gained 4.2%, either.

What the 2023 illustration rule actually restricts

The National Association of Insurance Commissioners (NAIC) governs how an insurer is allowed to illustrate a hypothetical IUL crediting rate through Actuarial Guideline 49, first adopted in 2015 and revised since as Actuarial Guideline XLIX-A, formally titled the application of the Life Illustrations Model Regulation to policies with index-based interest, commonly shortened to AG 49-A. It has been in effect for policies sold on or after December 14, 2020, and limits how a carrier can model the “illustrated scale,” the hypothetical growth rate shown to a buyer before they sign.

In 2023, the NAIC adopted a further amendment to close a specific loophole: some carriers were using an uncapped index paired with a fixed bonus feature to model illustrated rates well above what a standard capped index could show. The fix, effective for policies issued on or after May 1, 2023, limits the illustrated leverage on those bonus-and-multiplier designs to no more than the leverage a standard benchmark index account would produce. Insurance trade press often calls this update “AG 49-B,” though the Society of Actuaries notes that name is a widely used but technically incorrect nickname. NAIC’s own numbering keeps it inside Actuarial Guideline 49-A.

None of this changes what a policy actually earns. It only changes what a new illustration is allowed to show a buyer before they commit. Arjun’s 2011 illustration predates both this fix and its 2015 predecessor’s later refinements. The 6.8% average he was shown was never revised, and nothing requires his carrier to send him a new one unless he asks.

Two real years against the illustrated line

The gap only shows up when you run the actual charges against the actual crediting, year by year, against what the illustration assumed for those same two years.

Policy year	Index change	Credited rate (cap 9% / participation 100% / floor 0%)	Interest credited	Cost of insurance + admin charges	Account value, end of year
Start	–	–	–	–	$46,000
Year 1	+4.2%	4.2%	+$1,932	-$2,568	$45,364
Year 2	-1.5%	0.0% (floor)	$0	-$2,568	$42,796

Two years, and the account is down $3,204, even though the index only lost ground in one of them. Now compare that to what a level 6.8% illustrated rate, the rate Arjun’s 2011 paperwork used, projects for that same $46,000 over those same two years: $52,469. The gap between the illustrated line and his real account value is $9,673, on two years alone, on a policy 15 years into a 30-year projection.

That gap does not close itself. It compounds every year the real crediting rate runs below the illustrated one, because next year’s interest credit, whatever it turns out to be, is calculated on a smaller starting balance than the illustration assumed.

Indexed universal life had its best year on record in 2025, with new premium hitting $4.5 billion and IUL taking a 25% share of the individual life market, then it reversed. LIMRA’s own second-quarter release for 2026 reports new IUL premium down 11% year over year, the product’s first quarterly decline since 2023, with IUL’s market share slipping to 23%. New buyers are not walking away from the mechanic. They are walking away from a stretch of index years that made the gap between illustration and reality harder to ignore.

What to ask before you keep paying into one

An in-force illustration is a free document your carrier is required to produce on request. It runs your actual current account value forward at both the guaranteed minimum rate and a current non-guaranteed rate, so ask for one before you assume your policy is on track.

Ask for the current cost of insurance schedule by policy year, not just this year’s number. It rises every year, and a policy priced to work at 45 can need a much larger credited rate to hold steady at 65.

Compare the account’s actual multi-year average credited rate, calculated from your real annual statements, against the rate your original illustration assumed. If the two have been diverging for more than two or three years running, that gap is the number to bring to your agent, not a generic “how is my policy doing.”

A return-of-premium term policy sidesteps this entire mechanic by design. It has no index, no cap, no cost-of-insurance account draw to track, only a level premium and a refund if you outlive the term. It is not a substitute for permanent coverage, but it is a useful contrast: nothing about it needs an annual reconciliation against a 2011 illustration.

Frequently asked questions

What is a cap rate on an indexed universal life policy? The cap rate is the maximum interest rate an indexed universal life policy can credit in one crediting period, no matter how much the underlying index gained. If the cap is 9% and the index rose 14%, the account is still credited 9%. Insurers can adjust the cap on new business and, within contract limits, at renewal.

Can an indexed universal life account lose money in a bad year? The index-linked credit itself cannot go below the policy’s floor, usually 0%. The account value can still fall in that same year, because cost of insurance and administrative charges are deducted from the account regardless of what interest was credited. A $0 credited year is not a $0-cost year.

What does AG 49-A, sometimes called “AG 49-B,” actually require? It limits how insurers can illustrate hypothetical crediting rates on new indexed universal life policies, especially bonus and multiplier features that used uncapped indexes to model higher rates than a standard capped account could support. It changes what a new illustration can show a buyer. It does not change what an existing policy actually earns.

Why did my indexed universal life account value drop when the index barely moved? Cost of insurance charges rise every year you age and come out of the account monthly whether the index gained, lost, or sat flat. In a year the floor holds your credited interest near $0, those ongoing charges can outweigh the credit entirely, shrinking the account even without a negative index year.

Can I get an updated illustration on an indexed universal life policy I already own? Yes. Carriers are required to provide an in-force illustration on request, showing your actual current account value projected forward at both a guaranteed and a current non-guaranteed rate. Request one at least every few years, and compare it against your real annual statements rather than your original sales illustration.