This works the same as the other universal life contracts but your cash value is linked to an index such as the S&P 500. You are credited with interest when the index goes up but don't lose anything when it goes down.
Indexed universal life insurance is a type of life insurance that became available about 10 years ago and is generally considered a good investment for retirement. Most policies guarantee that your interest crediting rate will never fall below zero so that you won't lose money (you just won't make it) but can produce higher returns if the markets perform well.

They also have a cap as to how high a crediting rate they will pass on to you. Your cash value is linked to an index such as the S&P 500. These typically avg. around 7-8% returns and is about the same price as a universal life policy.

Index Universal Life offers:
· Permanent insurance protection
· Income tax-free death benefit to your heirs
· A source of income through withdrawals or loans (when properly structured)
· Fixed and indexed account options
· Fixed account with current rates of interest and guaranteed minimum interest rate
· Protection of your principal and accumulated cash value from negative market returns
· Additional flexibility through optional riders for an additional cost.