What is indexed universal life insurance and what are its risks?

Indexed universal life (IUL) is a permanent policy whose cash value earns interest tied to a market index like the S&P 500, subject to a cap on the upside and a floor (often 0%) that protects against index losses. It is pitched as market-like growth without downside risk, but the reality is more complicated. Caps and participation rates can be lowered by the insurer, fees and cost-of-insurance charges rise as you age and can erode cash value, and illustrations often assume optimistic returns. If the policy underperforms, you may need to pay more to keep it from lapsing. IULs are complex and expensive; most people are better served buying term and investing the difference in low-cost index funds. Have any illustration stress-tested at lower return assumptions before buying.