Floor Rate
In an IUL policy, the minimum interest rate credited to the cash value, typically 0%, which ensures the policy never loses value due to market declines.
Understanding Floor Rate
The floor is one of the most important features of indexed universal life insurance. Even when the S&P 500 drops 30%, a policy with a 0% floor receives 0% interest rather than a 30% loss. This downside protection is what distinguishes IUL from direct market investments, though it comes at the cost of reduced upside through cap rates.
Why This Matters for Retirement: Understanding Floor Rate is essential for making informed decisions about tax-free retirement income strategies. Whether you are evaluating an IUL policy, planning Roth conversions, or comparing retirement vehicles, this concept directly affects your outcomes.