With traditional universal life policies the issuing insurance company declares a fixed rate of interest that is credited to the policy cash value. With index universal life, interest is credited based in part on the potential upward movement of a specific stock market index over a specific period of time. Over the long-term, this could mean more cash value which you can access through loans or withdrawals.
Index universal life policies can benefit from the upward movement of an external stock market index. However, the market index can also go down. For those situations, most IUL’s have a minimum guaranteed interest rate that protects against index losses. This could be an ideal product for the more conservative client.