Yes it is true that the insurance company can change terms of the contract including the cap and floor rate, or the participation rate. It is important to understand how the insurance company sets policy caps and the economic factors that would have to exist for any change in policy cap to be enacted. One key element of IUL mechanics is interest rates. Lower rates typically yield lower policy caps and higher rates typically yield higher policy caps. This is not to suggest that if interest rates begin to increase that policy caps will immediately increase, but to underscore the fact that even with today's low interest rates most insurance carriers are offering competitive policy caps between 12% and 15%.
Two additional factors should be considered. The first is that insurance companies must operate in a competitive marketplace. While they retain the right to decrease caps or floors they must do so in the context of the overall marketplace. This competitive pressure demands that any movement in policy terms be cautiously considered and conservatively enacted. Large swings in policy terms that negatively affect the policy owners are extraordinarily rare.
Lastly it is important that policy changes also protect the owner. If rising interest rates do allow the carrier to raise caps they do so in order to allow policyholders to benefit from more favorable economic conditions.