Shadow account is an internal accounting mechanism used in some universal life and indexed universal life products to support secondary no-lapse guarantees. Separate from the visible policy cash value, the shadow account tracks hypothetical premiums, charges, and credited interest under guarantee assumptions. If the shadow account stays positive and required premium tests are met, the policy's secondary guarantee keeps coverage in force even when actual cash value is low or zero. If funding falls short, loans are taken, or charges increase, the shadow account can go negative and the no-lapse guarantee may terminate. Because shadow accounts are not directly disclosed as a cash value, clients must rely on in-force illustrations and carrier statements to monitor guarantee status.

Advisors encounter shadow account concepts when selling or servicing guaranteed universal life policies with secondary guarantees. They explain that the guarantee depends on meeting precise premium timing and amount requirements, even if the visible cash value appears adequate. In-force reviews often include checking whether the shadow account test is projected to remain satisfied under updated assumptions. Carriers may recommend premium adjustments if interest rate changes, cost of insurance increases, or policy loans threaten the shadow account. Understanding shadow accounts helps advisors communicate that no-lapse guarantees are powerful but conditional and that missing premiums, taking loans, or making changes can unintentionally jeopardize lifetime coverage.