Some people use the cash value they've built up in an indexed universal life (IUL) policy as an extra source of money to pay down their mortgage, potentially paying off their home ahead of schedule and reducing the total interest paid to the bank, all while keeping active life insurance protection.
The Problem: Interest on a 30-Year Mortgage
When you take out or refinance a long-term mortgage, a large share of your monthly payments in the early years goes straight to interest, not toward your home's principal. That means you end up paying the bank far more than what your property actually costs.
How the IUL Strategy Works
Instead of simply paying the mortgage month to month, some people take out an IUL with an additional premium, let the cash value grow over time — with floor protection against index downturns — and, once a significant amount has built up, use it to make a large payment toward their mortgage. This can reduce both the balance and future interest.
An illustrative example: someone with a $350,000 mortgage balance and an approximate monthly payment of $2,479 takes out an IUL with a $1,400 monthly premium. After 10 years, an illustration might show enough value to cover a large portion of the remaining balance, allowing them to pay it off early and keep additional value on top.
Debt and cash value over time
Hypothetical scenario to visualize the article's concept; actual figures depend on the policy and the mortgage.
Hypothetical example for illustrative purposes only. Results are not guaranteed and depend on the specific product, the insurer, and interest rates in effect at the time of the policy. Restrictions apply.
Who Does This Strategy Make Sense For?
This strategy isn't for everyone. It can work best for people with a stable income, the ability to consistently pay an additional premium for several years, and who want life insurance protection along with a long-term growth tool. It doesn't replace a personalized financial analysis.
Frequently Asked Questions
Is this the same as refinancing my home?
No. Refinancing changes the terms of your current loan. This strategy uses a separate tool, the IUL, to build up extra money that can later be applied to your existing mortgage.
How long does it take to build up enough cash value?
It varies based on the premium, the insurer, and the performance of the index used to calculate growth. It generally requires several years of consistent contributions.
Can I lose money along the way?
Most IUL policies include a floor that protects against negative index returns, but internal costs, withdrawals, and loans can reduce the value if the policy isn't well structured or funded.
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