To help you optimize your Financial Dimension, let’s take a look at how you can reposition cash value from a Whole Life policy to an Indexed Universal Life policy to take advantage of higher-potential index strategies, like the new Nasdaq-100 index strategies from Nationwide.
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From Whole Life to Indexed Universal Life
We often have clients who come to us to request a 1035 exchange, moving the cash value out of their Whole Life policies into properly structured, maximum-funded Indexed Universal Life policies (what we call IUL LASER Funds).
Why choose IUL over Whole Life? While Whole Life has its merits, there are a few distinctions that can make IUL advantageous:
- Whole Life policies are typically more expensive than IUL LASER Funds.
- The loan features are not as favorable with Whole Life policies when compared to IUL LASER Funds. (This is why professionals who specialize in Whole Life policies rarely show policy illustrations with loans, because the tax-free loan income tends to be low.)
- Whole Life policies are not as flexible with delayed premium payments.
- Dividends with Whole Life policies (currently averaging around 6%) tend to be lower than average index strategy returns for IUL (see Figure 1).
We’re also seeing that relatively new IUL offerings from Nationwide are making 1035 exchanges even more attractive to clients.
1035 Exchange With Perks
With 1035 exchanges, you can transfer the entire balance from one insurance policy to another, without having to comply with the 7-pay premium rule (funding the IUL policy over four to seven years).
For example, you can transfer the money from your Whole Life policy into a new Nationwide IUL policy that includes a dollar cost averaging feature.
The advantage of dollar cost averaging is the opportunity to have part of your cash value linked to your index strategy in different months of the year. You can choose three months, six months, or 12 months. You can also choose to have all or just part of your premiums participating in dollar cost averaging. (Note: Dollar cost averaging can be advantageous for uncapped strategies, because returns can vary widely from month to month.)
Leaning Into IUL’s Advantages
To illustrate, one of our clients whose IUL LASER Fund has been performing well since 2019 recently referred his brother to us.
His brother was less-than-thrilled with the Whole Life policies he had for over 10 years. While they had been performing fine — at around 4% to 5% — he was frustrated that it had taken so long to break even, and he wasn’t a fan of the fact that the fees were never disclosed.
Watching his brother’s IUL earn higher returns (while protected with a 0% floor during market downturns), he was ready for the advantages of IUL.
He decided to move $1.8 million from his Whole Life policies into a Nationwide policy with the dollar cost averaging feature. Over the next year, one-twelfth of that balance will be linked to the Nasdaq-100 one-year point-to-point uncapped index strategy.
He likes the 12-month dollar cost averaging approach because he doesn’t want policy growth to be tied to a single month every year. Things like war, tariffs, and natural disasters can cause market crashes in any one month, so he wants to spread the potential for index growth among all 12 months.
He also appreciates the opportunity he’ll have with his IUL to use Alternate Loans, where he can borrow at around 5% while still earning higher historic average returns, sometimes as high as 25% or more. (With his Whole Life, he was borrowing at 5.8% while earning just 4% to 5%.)
He has chosen the Nasdaq-100 uncapped one-year point-to-point with a 100% participation rate, a 10.75% spread, and a 0% floor.
While past performance isn’t a guarantee of future results, he likes what he has seen with recent returns on that index strategy.
He knows that some returns could be as low as 0% (like 0.70% from February 2025 to February 2026). But he also likes the possibility of returns as high as 10% to 28% (like several maturity periods from 2024 to 2025 and 2025 to 2026).
So if you’re thinking of making a move from Whole Life to IUL, you may want to consider a similar path: making a 1035 exchange into Nationwide policy with the dollar cost averaging feature.
* Recommendations are not guarantees of future performance. Index Insights provided by LASER Financial.
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Your next annual review is a perfect time to make changes with your index strategy allocations. Talk to your Certified IUL Professional about strategies that interest you! Just scan the QR code or click here.
Want to see recent Nasdaq-100 index strategy results? Check out our Summer 2026 “IUL Performance Watch” article today.
