Sometimes, but for indexed universal life the more useful question is usually why the policy is in trouble, and the answer is almost always one of two things: it was funded at the minimum, or loans were taken against it. Farm Bureau Life Insurance Company does market indexed universal life alongside term, whole life, and universal life, so unlike some carriers this is a live product category here. We are not going to assert current product names, because they change; identify yours from the product name printed on your own contract.
What determines the outcome is structural. An indexed contract is an account credited annually by a capped index formula and drained monthly by cost of insurance charges that rise steeply with the insured’s age. Fund it thinly and the account never gets far enough ahead to absorb those charges at older ages. Borrow against it and the loan compounds against the same account value that has to carry them. Both problems are visible years before they become emergencies, and both are fixable earlier and cheaper than later.
In This Article
- How the policy was funded decides most of the story
- Loans: the mechanism that quietly kills these policies
- The crediting formula, in the fewest words that are still accurate
- Why your original illustration is not admissible evidence
- What to request, and what the guaranteed column tells you
- Keep, restructure, or sell
- Frequently Asked Questions
How the policy was funded decides most of the story
Two policies with the same face amount and the same insured can behave completely differently depending on the premium chosen at issue.
Minimum-funded. The premium was set near the lowest level that would keep the contract in force under the illustrated crediting rate. This is common when indexed universal life is sold as a cheaper alternative to whole life or guaranteed universal life. It leaves almost no margin. If crediting comes in two points below the illustration for a decade, there is no accumulated cushion to absorb the shortfall, and the policy is heading for a rescue premium demand in its third decade.
Max-funded. The premium was set as high as tax rules permit without turning the contract into a modified endowment contract. This is the design sold for cash accumulation and later tax-advantaged withdrawals and loans. It has a real cushion and is far more likely to survive underperformance, though it also ties up substantially more money.
Find which one you have by comparing the premium you actually pay against two numbers the carrier can provide: the current minimum premium required to keep the policy in force for the next twelve months, and the guideline or seven-pay maximum. If your premium is near the bottom of that range, you are minimum-funded and the margin is thin. Our overview of how indexed universal life works covers the chassis in general.
One tax point that belongs with the max-funded design. A contract that failed the seven-pay test under Internal Revenue Code section 7702A is a modified endowment contract, which changes how lifetime distributions and loans are taxed and can add a penalty before age 59 and a half. Ask the carrier in writing whether the policy is a MEC, and take the tax consequences to your own accountant.
Loans: the mechanism that quietly kills these policies
Indexed universal life is frequently sold with an income story attached: build cash value, then take tax-advantaged loans in retirement rather than withdrawals. The concept is legitimate. The execution fails often, and the failure mode is worth understanding in detail.
Two loan types exist and they behave very differently. A fixed or standard loan charges a stated interest rate and moves the borrowed amount into a collateral account credited at a fixed rate, often close to the loan rate. The net cost is small and predictable. A participating or variable loan leaves the borrowed amount in the index account, where it continues to be credited, while charging a variable loan interest rate. When crediting exceeds the loan rate, the arbitrage is favorable and the illustration looks wonderful. When crediting comes in at zero and the loan rate is six percent, the borrower loses six percent on the borrowed amount that year.
Illustrations for loan-funded income routinely assume the favorable case repeats for decades. It does not have to. A sequence of flat index years while loan interest accrues can erode the account value to the point where the policy lapses, and a lapse with a large outstanding loan can trigger a taxable event on gain the owner never received in cash. That is one of the worst outcomes available in personal finance and it arrives with almost no warning.
If a loan is outstanding, ask the carrier for the loan balance, the loan type, the current loan interest rate, the crediting rate applied to loaned amounts, and an illustration showing the year the policy would lapse if no further payments were made. Our page on selling a policy with a loan against it covers how buyers handle an encumbered contract, since the loan is generally repaid from the proceeds and reduces the net amount you receive.
The crediting formula, in the fewest words that are still accurate
Index credit is not index return, and four settings explain the gap. The floor, usually zero, means a negative period credits nothing rather than a loss, but charges are still deducted, so a flat year still loses ground. The cap limits the credit for a segment, so an index gain of twenty-two percent against a nine percent cap credits nine. The participation rate multiplies the measured change before the cap applies. A spread subtracts a fixed percentage and appears mostly on uncapped accounts.
Two mechanical points that surprise people annually. Crediting is measured point to point between your own segment dates rather than over the calendar year, so a year the index finished higher can produce a flat segment. And the index is a price index, excluding dividends, which historically contribute roughly two percentage points a year to the S&P 500’s total return.
Caps are also not fixed. Most contracts permit the insurer to reset the current cap, typically annually, down to a guaranteed minimum cap that may be less than half the cap illustrated at issue. Caps compressed across the industry as bond yields fell, because the options budget that funds them shrank with portfolio yields. Ask for the current cap, the guaranteed minimum, and every change since issue; the pattern tells you how the block is being managed.
| Loan type | How the borrowed amount is credited | Risk profile |
|---|---|---|
| Fixed or standard loan | Moved to a collateral account at a fixed credited rate | Low; net cost is small and predictable |
| Participating or variable loan | Stays in the index account and keeps earning credits | High; a zero-credit year against a variable loan rate is a real loss |
| No loan outstanding | Not applicable | Lowest; account value carries charges directly |
| Loan larger than cash value | Policy is at immediate lapse risk | Severe; lapse with a loan can create a taxable event |
Why your original illustration is not admissible evidence
Indexed life illustration rules have been rewritten three times, so the projection you were shown depends heavily on when you bought.
Actuarial Guideline 49, effective in 2015, tied the maximum illustrated rate for index accounts to a long lookback using the policy’s own parameters, pulling illustrated rates down materially from what had been common. Carriers responded with multipliers, bonuses, and proprietary index accounts that produced high illustrated values without breaking the letter of the rule, so the National Association of Insurance Commissioners adopted AG 49-A for illustrations from December 2020. AG 49-B, effective in May 2023, further constrained proprietary and volatility-controlled accounts and bonus structures.
The rules also reached loan illustrations, which matters here specifically. The favorable loan arbitrage that made retirement-income projections look so attractive was among the things later guidelines constrained. If your policy was illustrated with loan-funded income before those changes, the projection could not lawfully be reproduced today, and it should not be used to argue that the current plan is on track.
What to request, and what the guaranteed column tells you
Ask Farm Bureau Life’s policy service center in writing for five items. An in-force illustration at current charges and current caps assuming the premium you actually pay. An in-force illustration at guaranteed maximum charges and guaranteed minimum crediting. The premium required to carry the policy to age 100 under current assumptions. The current and guaranteed minimum cap and participation rate for each index account. And, if a loan exists, the balance, type, rate, and a projection of the lapse year with no further payments.
Then find the year the account value reaches zero on the guaranteed column. That figure is not a forecast. It is the outer edge of the insurer’s contractual discretion, and it defines the risk you are carrying. If the guaranteed column lapses at insured age 79 and the insured is 72, act now. If it carries past 95 even on guarantees, you own something unusually durable. Everything between those is a judgment that requires numbers rather than adjectives, and our guide to reading an in-force illustration goes through the columns. Track the cost of insurance line across three consecutive annual statements while you wait; rising charges against a flat account value is the signature of a policy losing ground.
Farm Bureau Life Insurance Company is based in West Des Moines, domiciled in Iowa, and regulated by the Iowa Insurance Division. Its holding company FBL Financial Group was taken private in 2021 by Farm Bureau Property and Casualty Insurance Company. Note also that Farm Bureau life insurers are organized by state and are separate companies; Southern Farm Bureau Life in Jackson, Mississippi is a different insurer entirely, so confirm the exact name on your contract before calling.
Keep, restructure, or sell
Keep when the guaranteed column carries past the insured’s realistic life expectancy and the coverage still serves a purpose. Review every three years and read the annual statement each year rather than filing it.
Restructure when the policy is failing but the insured is not. Reducing the death benefit is the strongest lever, because cost of insurance is charged on the net amount at risk and a smaller face amount cuts the drain immediately. Repaying or restructuring a loan is next, particularly a participating loan in a period of flat crediting. Increasing premium while account value still exists is far cheaper than a rescue payment at 85. Moving funds to the fixed account can stabilize a contract that has credited zero repeatedly. If the policy is declared-rate rather than indexed, the same requests apply but the diagnosis differs; see our Farm Bureau Life universal life page.
Sell when the insured is roughly 70 or older, the death benefit is well above $100,000, health has declined materially since underwriting, and the illustration shows premiums the owner will not pay. Buyers price the required premium stream against a life expectancy estimate, so a heavy carrying cost lowers the offer, and an outstanding loan is generally repaid from the proceeds. On an impaired insured, market value frequently exceeds cash surrender value by a wide margin, which is why surrendering before checking is an irreversible mistake.
Pine Lake Life Solutions provides education and a free policy review. We do not purchase policies and are not licensed in every state. Whether a settlement is permitted where you live is set by your own state’s insurance law rather than Iowa’s, even though Iowa supervises the insurer. Nothing here is legal, tax, or investment advice. Send the policy cover page and the in-force illustration once the carrier produces it.
Frequently Asked Questions
How do I tell whether my policy was minimum-funded?
Ask the carrier for two figures: the minimum premium required to keep the policy in force for the next twelve months, and the guideline or seven-pay maximum premium. Compare the premium you actually pay against that range. A payment near the bottom means minimum funding and very little cushion against a decade of crediting that falls short of the original illustration.
What is a participating loan and why does it matter?
It leaves the borrowed amount in the index account, where it continues receiving credits, while charging a variable loan interest rate. When crediting exceeds the loan rate the arbitrage is favorable, which is what makes retirement-income illustrations look attractive. When a zero-credit year meets a six percent loan rate, the borrower loses that spread on the borrowed amount.
What happens if a policy lapses with a large loan outstanding?
It can create a taxable event on gain the owner never received as cash, because the loan is treated as a distribution when the contract terminates. This is one of the harsher outcomes available and it arrives with little warning. If a loan is outstanding, ask the carrier for a projection showing the lapse year with no further payments, and consult your own tax professional.
Can I still sell a policy with a loan against it?
Generally yes. The loan is typically repaid from the settlement proceeds at closing, so it reduces the net amount you receive rather than blocking the transaction. Buyers will want the exact loan balance and accrued interest as of a stated date. Provide the carrier’s written figures rather than an estimate, because the closing statement is calculated from them.
Is Farm Bureau Life the same as Southern Farm Bureau Life?
No. Farm Bureau Life Insurance Company is based in West Des Moines, Iowa and operates under the Farm Bureau Financial Services brand. Southern Farm Bureau Life Insurance Company is headquartered in Jackson, Mississippi and is a separate insurer serving different states. Several other state Farm Bureau federations have their own life companies as well, so read the full name on the face page.
Why did my index credit come in at zero when the market rose?
Crediting is measured point to point between your own segment start and end dates rather than across the calendar year, and it excludes dividends. A calendar year that finished higher can still show a decline between your specific dates. Participation rates and spreads reduce the result further. Ask the carrier for the segment start and end index values used.
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Related Reading
- Can I Sell An Indexed Universal Life Policy
- What Is Indexed Universal Life
- What Is A Modified Endowment Contract
- Can I Sell A Policy With A Loan Against It
- What Is An In Force Illustration
- What Is Cost Of Insurance
- Sell My Farm Bureau Life Universal Life Policy
- What Is A Policy Loan
Pine Lake Life Solutions does not purchase life insurance policies and does not provide legal, tax, or investment advice. Information provided is for educational purposes only. Eligibility for any option, including life settlements, is not guaranteed and depends on individual circumstances, policy terms, underwriting, and market conditions. Consult independent legal, tax, or financial professionals before making decisions regarding a life insurance policy.