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A
IUL is another name for whole life insurance
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B
IUL credits cash value interest based on the performance of a stock market index (such as the S&P 500), subject to a floor (minimum 0%) and a cap (maximum rate) — the owner participates in market gains up to the cap without direct investment risk, unlike variable UL which has no floor
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C
IUL guarantees returns equal to the index plus 2%
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D
IUL has no cash value component
Why this is the answer
INDEXED UNIVERSAL LIFE (IUL) sits between fixed UL (guaranteed but modest growth) and variable UL (market-linked with full downside risk). HOW IUL WORKS: Cash value interest is linked to the performance of an index (most commonly S&P 500 Price Return, not Total Return — dividends excluded); FLOOR: typically 0% — in a year the index drops 20%, you are credited 0%, not -20%; the principal is protected from market downturns; CAP: typically 8-12% — in a year the index rises 25%, you might only receive the cap (e.g. 10%); PARTICIPATION RATE: some contracts credit a percentage of the index return (e.g. 80% participation × 15% index return = 12% credited); COMPARISON: FIXED UL — guaranteed rate (e.g. 3-4%), no market link, predictable; VARIABLE UL — direct sub-account investment (mutual fund-like), full upside and downside, requires securities licence to sell; IUL — indirect index link, protected floor, capped upside, does NOT require securities licence (no direct securities ownership). LICENSING NOTE: IUL is an insurance product only — agents need only a life insurance licence (unlike VUL which requires both insurance and securities licences). SUITABILITY: IUL is positioned as 'upside potential with downside protection' — attractive to clients who want more than a fixed rate but fear direct market exposure.
Source: Life Insurance License Exam, Indexed Universal Life