Minimum is a floor, not a plan
Years at minimum funding are how IULs lapse in the owner’s 70s.
Design & strategy · Funding
How much should you fund an IUL? Between the minimum you must and the maximum you may
Every IUL illustration lists several premiums, and the difference between them is the difference between a policy that lapses and one that works. Here’s what each number means, where a well-funded policy sits, and the honest rule for a lean year.
Who this is for: Anyone deciding how much to pay into an IUL — or wondering whether their existing policy is underfunded.
The four premiums on the page
The minimum premium keeps the policy in force short-term — it’s a floor, not a plan, and a policy funded there for years will lapse when costs rise. The target premium is the carrier’s reference point, often near the level a permanent policy needs to stay healthy; it also determines agent compensation, which is why it sometimes gets presented as “the” premium. The guideline premium is a federal tax limit on total funding relative to the death benefit. The MEC premium (the 7-pay limit) is the ceiling for keeping favorable tax treatment on loans and withdrawals. Accumulation designs fund near the MEC limit; protection designs sit near target.
What “well-funded” means in practice
For an accumulation goal: near the MEC limit every year for the full schedule, typically ten to twenty years, then premiums stop and the policy carries itself. For a permanent-protection goal with modest accumulation: at or above target, consistently. In either case the honest test is the guaranteed column — does the policy survive past 90 at the premium you’ll actually pay? If a lean year forces a lower payment, the rule is to catch up the following year; a policy that drifts toward the minimum for several years is a policy that needs a redesign conversation, not more hope.
The essentials
What actually matters here
Target is a reference — and a commission point
Ask whether target actually keeps the policy in force at guaranteed values.
Accumulation lives near the MEC line
Fund to the limit, never past it; catch up after a lean year.
IUL can genuinely fit when…
- You can commit to the funding schedule the design requires
- Your budget survives a bad year without dropping to minimum
- You’ll review funding against the guaranteed column annually
- The premium is surplus, not stretched
Slow down when…
- Only the target premium was shown to you
- You’d fund the minimum “for now” and increase “later”
- A lean year would mean skipping premiums entirely
Straight answers
Questions people actually ask
What happens if I only pay the minimum premium on an IUL?
Short-term, the policy stays in force. Long-term, rising cost of insurance outpaces the thin cash value and the policy lapses — often in the owner’s 60s or 70s after decades of payments. Minimum-funded IUL is the single most common way people get hurt by the product. If the minimum is all the budget allows, term is the honest alternative.
What is the target premium on an IUL?
A carrier-set reference premium, often near what a permanent policy needs to stay healthy long-term — and also the basis for agent compensation, which is why it sometimes gets presented as the premium. It may or may not be enough; check the guaranteed column at that funding level.
Can I overfund an IUL?
Up to the MEC limit, yes — that’s the accumulation design. Past it, the policy becomes a Modified Endowment Contract and loses favorable tax treatment on loans and withdrawals. Your illustration states the MEC premium; carriers typically warn before a payment would cross it.
Honest, or not at all
See whether IUL actually fits your situation
Tell us a little about your goals and we'll show you the honest picture — including the guaranteed column, the real costs, and whether term or whole life does the job better. We're paid the same either way, which is why we can tell you the truth.
- We compare IUL against the simpler options first
- Illustrations explained line by line, guaranteed column first
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