Glossary

Floor

The minimum rate an indexed universal life policy or indexed annuity credits for a period, often 0%, so index losses don't reduce the credited interest.

Also called: index floor, floor rate, 0% floor

A floor is the lowest interest rate an indexed product will credit for a crediting period, no matter how far the linked index falls. Most fixed indexed annuities and indexed universal life (IUL) policies use a 0% floor, though some strategies offer a small positive floor. The floor is what lets these products advertise protection from market losses.

Hypothetical example: an IUL segment has a 0% floor and a 10% cap. If the S&P 500 falls 18% during the segment year, the policy credits 0%, so the index drop itself does not reduce the account value. If the index then rises 12% the next year, the policy credits 10%.

The floor protects the credited interest, not the account value. In IUL, monthly cost-of-insurance charges, premium loads and other fees are still deducted in years with a 0% credit, so the account value can fall, sometimes sharply for older insureds. A 0% year is also a year of no growth while charges continue. In an indexed annuity with no rider fees, by contrast, a 0% year generally leaves the value unchanged. Compare floors alongside caps and participation rates; see IUL caps, participation rates and floors and IUL pros and cons: what the sales pitch leaves out.

Last reviewed October 4, 2026

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Related terms

Cap rate The maximum rate an indexed universal life policy or indexed annuity will credit for a period, no matter how much the linked index rises. Participation rate The percentage of an index's gain that an indexed annuity or IUL policy credits as interest, such as 80% of a 10% rise, or 8%. Index crediting method The formula an indexed annuity or IUL policy uses to turn an index's movement into interest, such as annual point-to-point or monthly average. Indexed annuity A fixed annuity whose interest is tied to a market index's gains, limited by caps or participation rates, with a floor that shields it from index losses. Cost of insurance (COI) The monthly charge a universal life policy deducts to pay for its death protection, based on the insured's age, rate class and the amount at risk.

Related guides

Fixed indexed annuities: caps, participation rates and trade-offs A fixed indexed annuity credits interest tied to an index with a zero floor. How caps, participation rates and spreads work, the real costs, and who it suits. Indexed universal life (IUL) explained How indexed universal life credits interest from a stock index, what it costs, how policy loans work and why illustrations are limited by regulators. IUL caps, participation rates and floors How caps, participation rates, spreads and floors turn an index's return into an IUL credit, with worked examples and what insurers can change each year. IUL illustrations and Actuarial Guideline 49 How the NAIC's Actuarial Guideline 49 limits the returns an IUL illustration may show, what changed in 2015, 2020 and 2023, and what it cannot do. IUL pros and cons: what the sales pitch leaves out An even-handed look at indexed universal life: the real advantages, the costs and risks, and who it fits. Includes a checklist for evaluating an IUL proposal. IUL vs 401(k): why the comparison misleads IUL and a 401(k) do different jobs. Compare 2026 contribution limits, taxes, costs, access and risk before shifting money from one to the other.