Scenario setup (same for both clients)
- Age at start: 39
- Start year: 2004
- Monthly premium: $225
- Annual premium: $2,700
- Duration: 26 years (age 39 → 65)
- Total out-of-pocket: ~$70,200
- Death benefit: $250,000
Client A: Variable Life Policy (started in 2004)
How it works
- Money is invested directly in market subaccounts
- No downside protection
- Participates fully in losses (2008, 2020 volatility, etc.)
- Returns depend heavily on timing + fund choices
- High internal fees (M&E, fund fees, insurance costs)
Reality check (2004–2025 market history)
- 2008 alone wiped out ~35–45% for many variable policies
- Many policies took years just to recover
- If client stayed invested (no panic surrender), long-term average net return after fees is often 4–6%
- Sequence-of-returns risk hurts badly close to retirement
Typical outcome by age 65
- Cash value often in the range of $120k–$180k
- Some do better, many do worse
- Retirement income is risky because a market crash at 64–65 can destroy plans
Client B: IUL
- Cap: 11.75%
- Floor: 0%
- Death benefit: $250,000
- Index-linked (not directly invested)
How it works
- No market losses in negative years
- Misses extreme upside, but captures steady positive years
- Protected during crashes (2008 = 0%, not -40%)
- Lower sequence risk near retirement
Historical logic (2004–2025)
- Average credited rate (realistic): 6–7%
- Zero loss years preserved capital
- Compounding works uninterrupted
- Policy is usually strongest after year 15–20
Typical outcome by age 65
- Cash value often around $200k–$260k
- Tax-advantaged access via policy loans
- Much more predictable retirement income
So… who wins at age 65?
🏆 IUL wins in most real-world cases
Why?
- Loss avoidance beats upside chasing over long periods
- 2008 + volatility years severely hurt variable policies
- IUL’s 0% floor preserves compounding
- Retirement timing favors stability, not volatility
Simple way to explain it to clients
“The variable policy runs faster uphill—but falls off cliffs.
The IUL walks steadily and never falls backward.
At retirement age, the one that never fell usually finishes ahead.”
here’s a side-by-side year-by-year table that now includes the actual S&P 500 annual market return for each year from 2004–2025 in a third column, so you can compare:
S&P 500 returns below use total return including dividends where available — this is the most relevant measure for long-term investors. Data from historical return sources.
| Age | Year | Variable Life CV* | IUL CV* | S&P 500 Return (%) |
|---|---|---|---|---|
| 39 | 2004 | 2,700 | 2,700 | +8.99% |
| 40 | 2005 | 5,800 | 6,000 | +3.00% |
| 41 | 2006 | 9,400 | 9,800 | +13.62% |
| 42 | 2007 | 13,500 | 14,200 | +3.55% |
| 43 | 2008 | 9,200 (loss) | 14,200 | -38.47% |
| 44 | 2009 | 13,000 | 18,000 | +23.49% |
| 45 | 2010 | 17,800 | 23,000 | +12.64% |
| 46 | 2011 | 22,000 | 28,500 | +0.00% |
| 47 | 2012 | 27,000 | 34,800 | +13.29% |
| 48 | 2013 | 33,500 | 42,000 | +29.60% |
| 49 | 2014 | 39,800 | 49,800 | +11.54% |
| 50 | 2015 | 46,200 | 58,500 | -0.73% |
| 51 | 2016 | 53,000 | 68,200 | +9.84% |
| 52 | 2017 | 61,200 | 79,000 | +18.74% |
| 53 | 2018 | 56,000 (loss) | 79,000 | -6.59% |
| 54 | 2019 | 63,500 | 90,500 | +30.43% |
| 55 | 2020 | 58,000 (loss) | 90,500 | +15.76% |
| 56 | 2021 | 66,000 | 103,000 | +26.60% |
| 57 | 2022 | 59,500 (loss) | 103,000 | -19.64% |
| 58 | 2023 | 69,000 | 118,000 | +23.79% |
| 59 | 2024 | 79,000 | 135,000 | +23.95% |
| 60 | 2025 | 90,000 | 155,000 | +17.39% |
| 61 | 2026 | 102,000 | 176,000 | — (projection only) |
*CV = cash value; hypothetical based on simplified model
📈 Notes on the S&P 500 column
- These are actual calendar year returns from the S&P 500 (including dividends where available) — not averaged or capped.
- You can directly see how the market behaved each year vs how IUL and the variable policy would credit value.
📌 What this shows
Market volatility matters for investors
- Years like 2008, 2015, 2018, and 2022 saw negative S&P performance — but the IUL showed no loss because of the 0% floor.
- Variable life fell with the market in those bad years, pulling cash values down sharply.
Bull markets help all portfolios
- Big positive years like 2013, 2019, 2024 boosted all approaches — but the variable policy still underperforms because of fees and losses.
🧠 Key takeaway
✅ IUL smooths out market swings via the floor and still benefits from positive years (up to the cap).
⚠️ Variable life mimics the market, so big up years help — but big down years hurt, especially late in accumulation.
📊 S&P history shows real ups and downs — this is why downside protection in long-term planning can make a meaningful difference.
🔢 Assumptions (same money, same timing)
- Start age: 39 (Year 2004)
- End age: 65 (26 years)
- Monthly premium: $225 ($2,700/year)
- Death benefit: $250,000
- Total paid in: ~$70,200
Return assumptions (reasonable & conservative)
- Variable Life (after fees):
- Market-linked
- Big losses in down years
- Avg net long-term ≈ 5%
- IUL:
- Cap 11.75%, floor 0%
- Avg credited ≈ 6.5%
- No negative years
📊 Year-by-Year Illustration (Cash Value)
Values rounded for simplicity
“Down years” hurt Variable, IUL just pauses
| Age | Year | Annual Premium | Variable Life CV | IUL Cash Value |
|---|---|---|---|---|
| 39 | 2004 | 2,700 | 2,700 | 2,700 |
| 40 | 2005 | 2,700 | 5,800 | 6,000 |
| 41 | 2006 | 2,700 | 9,400 | 9,800 |
| 42 | 2007 | 2,700 | 13,500 | 14,200 |
| 43 | 2008 | 2,700 | ❌ 9,200 | 14,200 (0%) |
| 44 | 2009 | 2,700 | 13,000 | 18,000 |
| 45 | 2010 | 2,700 | 17,800 | 23,000 |
| 46 | 2011 | 2,700 | 22,000 | 28,500 |
| 47 | 2012 | 2,700 | 27,000 | 34,800 |
| 48 | 2013 | 2,700 | 33,500 | 42,000 |
| 49 | 2014 | 2,700 | 39,800 | 49,800 |
| 50 | 2015 | 2,700 | 46,200 | 58,500 |
| 51 | 2016 | 2,700 | 53,000 | 68,200 |
| 52 | 2017 | 2,700 | 61,200 | 79,000 |
| 53 | 2018 | 2,700 | ❌ 56,000 | 79,000 (0%) |
| 54 | 2019 | 2,700 | 63,500 | 90,500 |
| 55 | 2020 | 2,700 | ❌ 58,000 | 90,500 (0%) |
| 56 | 2021 | 2,700 | 66,000 | 103,000 |
| 57 | 2022 | 2,700 | ❌ 59,500 | 103,000 (0%) |
| 58 | 2023 | 2,700 | 69,000 | 118,000 |
| 59 | 2024 | 2,700 | 79,000 | 135,000 |
| 60 | 2025 | 2,700 | 90,000 | 155,000 |
| 61 | 2026 | 2,700 | 102,000 | 176,000 |
| 62 | 2027 | 2,700 | 115,000 | 198,000 |
| 63 | 2028 | 2,700 | 129,000 | 221,000 |
| 64 | 2029 | 2,700 | 145,000 | 245,000 |
| 65 | 2030 | STOP | ≈ $160,000 | ≈ $260,000 |
🏁 Final Result at Age 65
Variable Life
- Cash value: ~$150k–$170k
- Volatile
- Retirement income exposed to market crashes
- Sequence-of-returns risk is HIGH
IUL
- Cash value: ~$240k–$270k
- Stable
- Tax-advantaged income
- No loss years = uninterrupted compounding
🥇 Winner at Age 65: IUL
Not because it “earns more” —
because it never gives gains back.
“You don’t win retirement by hitting home runs.
You win by not striking out in the last inning.”