IUL is about the underlying index segment volatility not including dividends. There will be some years where you won't have a gain. That's why, in the end, both an IUL and a WL will be about the same in terms of overall cash values (assuming they are structured the same way).
IUL is truly a CONCEPT product... not one that you can really "backtest" to determine viability. It will succeed as long as you are an agent that will review your policy performance with your clients on a regular basis. (You'd want to do that anyway.)
Think of it this way: if an IUL got a 10% return in one year, and 0% the next... and if WL earned 5% for both of those same years... you're about the same in terms of overall return and performance. Both still need to be managed by the agent with the policyholder over time to maximize its performance and impact on a family's personal economy.
There's lots of information regarding how to properly structure an IUL policy. Look up scagnt83's posts. It's there. Search for CVAT and CPT. He explains it far better than I would.
One big difference between WL and IUL is on the base policy WL vs target premium IUL: During the first 2-3 years, WL shows almost zero cash value. Yet, IUL will show an ACCOUNT value that's higher and working for them. Showing that account value when reviewing the policy can be much more encouraging to someone to keep putting money into it rather than showing nothing with the WL.
Again, that's just on the base policy only.
Yes, the first 2-3 years of premiums on a WL are paying for the permanent death benefit and the riders, and after that, it's practically $1 for $1 being deposited into the contract.
Now, think about client perception. For them, the highest risks was in buying the contract and then watching the money go into the contract for a while... and then not seeing anything for it?
Brian Tracy has often recommended to sales people to "be the lowest risk provider of your products and services." For a target premium only policy, at least you have an account value that's working for you to earn indexed interest credit... when the base WL doesn't.
Granted, if you structure both of them properly, it really won't matter as much since you'll have PUA riders in the WL, or overfund the IUL above the target premium... but where ever you can, you want to have the client WANT to put more money into the contract and reaffirm that they are on their way to the future they want.
Now, the REAL fear... is that the stock market indexes would remain FLAT or decline for multiple consecutive years in a row.
Well, the S&P 500 (the most common index) is a managed index. There's 505 stocks in it now (5 companies have two classes of stock shares, so they are counted twice).
Go down this list and you can see how recently companies were added. Go further down and you can see which companies replaced other companies.
So while there will be a couple of years of no gains or losses in a row... I wouldn't necessarily worry about it long-term.