Indexed universal life insurance policies put a portion of the policyholder’s premium payments toward annual renewable term insurance with the remainder added to the cash value of the policy. On a monthly or annual basis, the cash value is credited with interest based on increases in an equity index. The gains are applied based on a participation rate that’s set by the insurance company, which can be anywhere from 25% to more than 100%. Indexed universal life policies provide greater upside potential, flexibility, and tax-free gains. However, there are caps on returns and no guarantees as to the premium amounts or market returns. In general, these policies are best for those with a large upfront investment who are seeking options for a tax-free retirement.