What Happens If You Don’t Qualify for Your Next IUL JUMP?

You’re five years into your IUL JUMP Strategy.

You started by contributing $10,000 per year.

Your first JUMP was approved.

Then your next one was approved.

Now another policy anniversary is coming up.

You’re supposed to apply for the next death-benefit increase so the strategy can progress to the next Matching Indexed Participating Loan level.

But something has changed.

Maybe it’s your health.

Maybe your income dropped.

Maybe your employment changed.

Maybe the financial underwriting no longer supports the additional death benefit being requested.

And now you’re thinking:

“What happens if they don’t approve my next JUMP? Does this whole strategy fall apart?”

That’s exactly the question you should ask before starting the strategy.

A Missed JUMP Does Not Automatically Mean You Start Over

This is probably the biggest misconception to clear up.

Under the JUMP mechanics we’re discussing, if you aren’t approved for the next planned JUMP, you do not automatically go all the way back to the original funding level.

The successful progression you’ve already achieved doesn’t simply disappear because the next planned increase wasn’t approved.

A missed JUMP can pause the progression rather than automatically resetting the strategy.

That’s a very important distinction.

Here’s a Simple Example

Suppose you’re contributing $10,000 per year.

Your strategy progresses like this:

Now imagine you successfully completed the Year 3, Year 5 and Year 7 JUMPs.

That means you’ve reached the example’s:

$30,000 Matching Indexed Participating Loan level.

Combined with your $10,000 client contribution, the example shows:

$40,000 of total annual funding.

Then Year 9 arrives.

The next planned JUMP would move the matching-loan level from $30,000 to $40,000.

But you’re not approved.

You Don’t Automatically Drop From $30,000 Back to Zero

Under the mechanics we’re discussing, the fact that you weren’t approved for the next JUMP does not automatically erase the previously achieved $30,000 matching-loan level.

You can remain at that already-achieved level under the strategy mechanics described here, subject to the actual policy contract and applicable carrier rules.

So instead of progressing to:

$10,000 client contribution + $40,000 Matching Indexed Participating Loan = $50,000 total annual funding shown,

the strategy may continue at:

$10,000 client contribution + $30,000 Matching Indexed Participating Loan = $40,000 total annual funding shown.

The progression paused.

It didn’t automatically reset.

That’s Very Different From “The Strategy Failed”

If somebody hears:

“You didn’t qualify for the next JUMP,”

it’s easy to assume the whole thing is over.

But those aren’t the same statement.

A missed future increase can mean you don’t advance to the next planned level at that time.

It doesn’t automatically mean every successful JUMP that came before it vanishes.

Can You Apply Again Later?

Under the strategy mechanics we’re discussing, you may potentially reapply at a later policy anniversary if the circumstances that affected the earlier approval improve.

For example, maybe your financial situation changes.

Maybe your income increases.

Maybe an underwriting issue is resolved.

Maybe another factor that affected the prior application changes.

A future application would still be subject to the underwriting requirements and approval standards in effect at that time.

Reapplying is not the same as being guaranteed approval.

Why Might Someone Not Qualify for the Next JUMP?

There isn’t only one reason.

Future underwriting can consider factors such as:

• Health
• Income
• Employment
• Existing life insurance
• Driving history
• Occupation
• Hazardous job duties
• Risky hobbies or extracurricular activities
• Other medical and financial underwriting factors

The actual requirements and approval decision are controlled by the insurance company.

You Could Be Healthy and Still Have a Problem With the Next JUMP

This catches people off guard.

Imagine your health is excellent.

No major diagnosis.

No major medical change.

But your income has fallen substantially.

Or you’ve retired.

Or your employment situation changed.

The next JUMP involves requesting additional death benefit.

Financial underwriting can matter when determining whether that additional amount of life insurance is justified.

So:

“I’m still healthy”

does not automatically mean:

“My next JUMP is guaranteed.”

The Reverse Can Happen Too

Your financial situation may be strong.

Your income may be higher than when you started.

But your health may have changed.

Now the issue is medical underwriting.

That’s why future JUMP approval needs to be treated as an assumption until it actually happens.

Why Does the Next JUMP Need More Death Benefit Anyway?

The JUMP Strategy is designed to increase the policy’s funding capacity over time.

Life insurance has tax rules governing how much premium can be placed into a policy relative to its design before Modified Endowment Contract treatment can become an issue.

The planned JUMPs increase the death benefit enough to create additional funding capacity while seeking to maintain the intended non-MEC structure.

The death benefit doesn’t simply double every few years.

The increase is tied to the intended policy design and additional funding capacity.

And Additional Death Benefit Means Additional Insurance Risk

That’s why the carrier has to approve it.

You’re requesting more life insurance.

The insurance company evaluates whether it is willing to accept that additional risk based on the applicable underwriting requirements.

If the additional coverage isn’t approved, the planned progression to the next JUMP level may not happen at that time.

What Happens to the Policy Loans You’ve Already Created?

They don’t disappear simply because the next JUMP wasn’t approved.

The Matching Indexed Participating Loans used in the strategy are actual policy loans.

They create policy indebtedness.

Later JUMPs don’t normally erase the earlier loans under the mechanics we’re discussing.

So if you’ve already completed several JUMPs, the accumulated policy indebtedness from those prior Matching Indexed Participating Loans remains part of the policy economics.

That’s Why a Missed JUMP Doesn’t Mean You Get to Erase the Loan Side Either

This needs to be understood from both directions.

You don’t automatically lose the previously achieved matching-loan level just because the next JUMP isn’t approved.

But you also don’t get to pretend the indebtedness associated with previous loan activity never existed.

The policy still needs to be managed.

Loan costs still matter.

Policy charges still matter.

Actual policy performance still matters.

The Current Applicable Loan Rate Is 5%

With the policy structure we currently use for the IUL JUMP Strategy, the applicable loan rate is currently 5%, with a contractual maximum loan rate of 6% for the applicable loan feature.

The current rate should not be confused with the maximum.

And 5% should not be treated as though it can never change.

If your JUMP progression pauses, continuing to monitor the loan economics becomes even more important.

Why?

Because your original retirement projection may have assumed additional future JUMPs.

If those additional JUMPs don’t occur when originally illustrated, your future funding progression has changed.

That means the projected retirement-income result should change too.

Don’t keep using the old projection after the facts have changed.

This Is the Part People Can Get Wrong

Imagine your original illustration assumes:

Year 3 JUMP.

Year 5 JUMP.

Year 7 JUMP.

Year 9 JUMP.

Year 11 JUMP.

Then the Year 9 JUMP doesn’t happen.

You should not keep pointing to the original age-65 income number as though nothing changed.

The strategy needs to be rerun using the new facts.

What Should the New Projection Show?

At a minimum, I want to see:

• The matching-loan level already achieved
• The client contribution
• The current policy value
• The current death benefit
• The outstanding policy indebtedness
• The applicable loan rate
• Current policy charges
• The effect of pausing the next JUMP
• Updated future JUMP assumptions
• Updated projected retirement income
• Updated policy durability
• Updated projected net death benefit

Now we’re making a decision using the policy you actually have.

Can the Strategy Still Work If You Miss a JUMP?

Potentially, yes.

But “still work” needs a definition.

Does the policy remain in force?

Does the previously achieved funding level continue under the applicable mechanics?

How much projected retirement income does the revised strategy produce?

How durable is the policy under lower crediting assumptions?

What happens if no additional JUMPs are ever approved?

Those are the questions I’d rather answer than simply saying:

“Don’t worry about it.”

Run the Strategy With No More JUMPs

This is one of the most useful stress tests.

Suppose you’ve reached the $30,000 matching-loan level.

The original projection assumes you’ll eventually reach $40,000 and then $50,000.

Run another version where that never happens.

Keep the strategy at the previously achieved level under the mechanics being modeled.

Now look at the retirement income.

How much did it change?

Does the policy remain durable?

What happens to the outstanding loans?

What happens at age 90?

Age 95?

That’s useful information.

Then Run the “Delayed JUMP” Scenario

Maybe the next JUMP isn’t approved this year.

But the circumstances improve later and a future application is approved.

Model that separately.

Now you have at least three paths:

Path One: Every planned JUMP occurs as originally illustrated.

Path Two: The next JUMP is delayed and occurs later.

Path Three: No additional JUMPs occur after the level already achieved.

That’s a much more useful conversation than pretending only Path One exists.

Now Add a Higher Loan Rate

If you’re going to stress-test it, don’t change only one assumption.

Run the paused-JUMP scenario with the current applicable 5% loan rate.

Then run it using the contractual maximum of 6%.

Now you can see how sensitive the strategy is when two things don’t go according to the original projection.

Then Lower the Indexed-Crediting Assumption

One historical analysis used with this strategy examined annual S&P 500 price changes from 2006 through 2020, excluding dividends.

The analysis applied a 10% cap and 0% indexed-crediting floor to annual price changes.

Under those assumptions, the historical period produced a:

6.87% average indexed-crediting result.

That’s not the historical return of the S&P 500.

It’s not a guaranteed future IUL crediting rate.

It’s not a guaranteed policy return.

So don’t build the entire retirement plan around 6.87% occurring forever.

Why the 5% Loan Rate and 6.87% Example Matter

Under those specific assumptions:

6.87% – 5.00% = 1.87 percentage points.

That’s the modeled positive spread.

If applicable indexed crediting exceeds the applicable loan cost, the loan-funded portion can experience favorable economics under the model.

But if indexed crediting is 0% and the applicable loan rate is 5%, the economics are unfavorable for that period.

Positive arbitrage isn’t guaranteed.

What Do the JUMPs Do to the Modeled Effective Result?

Under assumptions used in one JUMP analysis, the combination of the base indexed-crediting assumption and the positive-arbitrage effect attributed to successive Matching Indexed Participating Loans produced modeled effective results of approximately:

• 8.74% at the Year 3 JUMP
• 11.61% at the Year 5 JUMP
• 14.48% at the Year 7 JUMP
• 17.35% at the Year 9 JUMP

Those aren’t S&P 500 returns.

They aren’t IUL indexed-crediting rates.

They aren’t guaranteed policy returns.

They’re modeled effective results under the assumptions used in that analysis, before accounting for applicable policy charges and other factors.

Now You Can See Why Missing a Future JUMP Matters

If successive JUMPs are part of what creates the projected funding and modeled retirement-income advantage, failing to progress to the next level can change the final result.

That doesn’t automatically mean the policy becomes worthless.

It means the projection needs to reflect reality.

What About the Up-to-300% More Projected Retirement Income?

In certain modeled comparisons we’ve evaluated, the IUL JUMP Strategy has produced up to approximately 300% more projected retirement income than the 401(k), Traditional IRA, or comparable tax-deferred retirement strategy being evaluated.

That’s a powerful modeled result.

But here’s the question I want you to ask:

“How many successful future JUMPs were assumed to produce that number?”

If the answer is several, those future approvals are part of the assumptions behind the projection.

A Missed JUMP Doesn’t Make the 300% Number Automatically True or False

It means you rerun the comparison.

Maybe the projected advantage gets smaller.

Maybe it remains substantial.

Maybe the new result changes the decision.

You won’t know until you update the math.

The 300% isn’t the sales pitch. It’s the question.

Show me exactly where the difference comes from.

Don’t Protect the Projection

This is a big one.

Once people fall in love with a retirement-income number, there’s a temptation to defend it.

Don’t.

If the original projection showed $200,000 of annual retirement income and a missed JUMP reduces it, show the lower number.

That’s the whole point of reviewing the strategy.

The goal isn’t to make the original illustration look right.

The goal is to know where you actually stand.

What About the Approximately 40% More Than a Traditional IUL?

In certain modeled comparisons we’ve evaluated, the JUMP Strategy has produced approximately 40% more projected retirement income than the traditional IUL structure being compared.

But once again, the assumptions matter.

If future JUMP progression changes, rerun the JUMP strategy before relying on the original comparison.

The 40% isn’t guaranteed either.

Could You Be Better Off Knowing About the Missed JUMP Early?

Absolutely.

Suppose you’re 52 and the next JUMP isn’t approved.

You still have years before retirement.

You can update the plan.

You can adjust savings.

You can potentially reapply later if circumstances improve.

You can change the retirement-income target.

You can add other retirement buckets.

You can make decisions while you still have time.

That’s much better than finding out at 67 that the original projection stopped matching reality 15 years ago.

This Is Why Annual Policy Reviews Matter

A long-term IUL strategy shouldn’t be treated like a document you sign once and forget.

You should know what’s happening inside the policy.

Review:

• Actual policy value
• Credited interest
• Policy charges
• Death benefit
• Outstanding policy loans
• Applicable loan rate
• Upcoming JUMPs
• Current underwriting considerations
• Updated retirement-income projections

The closer you get to retirement, the more valuable that review becomes.

What If You Never Qualify for Another JUMP?

That’s a separate scenario worth modeling.

Don’t assume you’ll eventually qualify.

Run the numbers as though the matching-loan level you’ve already achieved is the final level.

Then ask:

“Would I still be comfortable owning this policy if this is as far as the JUMP progression ever goes?”

That’s a strong test.

If the answer is no, you need to understand that before relying on future approvals.

The Worst Question Is “Will Everything Be Fine?”

Nobody can answer that responsibly from an illustration.

A better question is:

“Show me what happens if this doesn’t go exactly according to plan.”

That question forces the strategy to show its weaknesses.

And I’d rather see the weakness now than discover it in retirement.

This Is Where the Emotional Side Shows Up

Imagine you’re 58.

You’ve already put years into the strategy.

You’ve watched the JUMP progression work.

Then you aren’t approved for the next increase.

Your mind doesn’t immediately go to:

“Let’s update the illustration.”

It goes to:

“Did I make a mistake?”

“Am I stuck now?”

“Did this just ruin my retirement?”

Those are real reactions.

And Then Comes the Bigger Fear

“What if we mess this up and regret it?”

That’s why you want to understand the missed-JUMP mechanics before the first JUMP ever happens.

You don’t want to learn the downside scenario when you’re already emotionally attached to the original retirement-income number.

What You’re Really Trying to Protect Is Your Independence

You want enough income to live comfortably.

You want to handle your own bills.

You want the plan to survive some bad years.

You want options if your health changes.

You don’t want your kids becoming the emergency plan.

“I don’t want to ask my kids for help.”

“We should be able to handle this ourselves.”

A retirement strategy should be tested against those fears, not built around pretending nothing will ever go wrong.

So, What Happens If You Don’t Qualify for Your Next IUL JUMP?

Under the JUMP mechanics we’re discussing, you don’t automatically lose the successful progression you’ve already achieved or fall all the way back to the original funding level simply because the next planned JUMP isn’t approved.

A missed JUMP can pause the progression rather than automatically resetting the strategy.

You may remain at the matching-loan level already achieved, subject to the actual policy contract and applicable carrier rules.

You may also potentially reapply at a later policy anniversary if your circumstances improve, with any future application still subject to underwriting and approval.

What you should not do is continue relying on the old retirement-income projection as though the missed JUMP never happened.

Update the Math Immediately

Show the current policy.

Show the level already achieved.

Show the outstanding indebtedness.

Show the applicable loan rate.

Show the revised future JUMP assumptions.

Then show the updated projected retirement income.

That’s the number that matters now.

How We Handle This at FPP Financial

At FPP Financial, we use our Retirement Math Method™.

If your next planned JUMP isn’t approved, I’m not interested in pretending the original illustration is still perfect.

I want to rerun it.

We’ll look at the matching-loan level you’ve already achieved.

We’ll look at the policy value.

We’ll look at the outstanding policy indebtedness.

We’ll look at policy charges.

We’ll model the current 5% applicable loan rate.

We’ll stress-test the contractual 6% maximum.

We’ll lower the indexed-crediting assumption.

We’ll test what happens with no more JUMPs.

We’ll test a delayed future JUMP where appropriate.

Then we’ll update the projected retirement income.

I don’t try to sell you on the strategy. I make the strategy prove itself with the math.

Want to See What Happens If Your JUMP Progression Doesn’t Go Exactly as Planned?

If you’re considering the IUL JUMP Strategy, don’t look only at the perfect path.

Let’s model the path where everything goes as planned.

Then let’s model the path where it doesn’t.

We’ll look at the planned JUMPs.

We’ll look at the matching-loan progression.

We’ll account for policy indebtedness.

We’ll test the current 5% applicable loan rate.

We’ll test the contractual 6% maximum.

We’ll lower the indexed-crediting assumptions.

We’ll model a missed JUMP.

We’ll model no additional JUMPs.

Then we’ll compare projected retirement income.

If the strategy still works under assumptions you’re comfortable with, you should see it.

If a missed JUMP materially changes the outcome, you should see that too.

The number isn’t the reason to buy it. The assumptions behind the number are what you need to understand.

The 300% isn’t the sales pitch. It’s the question.

Show me exactly where the difference comes from.

Let the math do the talking.

Schedule Your Tax-Free Retirement Strategy Meeting

Explore More

• Why Do Future IUL JUMPs Require New Underwriting?
• How Can $10,000 a Year Turn Into $60,000 of Annual IUL Funding?
• What Is the IUL JUMP Strategy and How Does It Work?

Disclosure

This material is for educational purposes only and is not intended as individualized investment, securities, tax, legal, underwriting or insurance advice. Indexed universal life insurance is permanent life insurance and is not a qualified retirement plan, IRA, brokerage account or direct investment in a market index.

Future JUMPs and associated death-benefit increases are subject to carrier approval and applicable underwriting requirements. Future approval is not guaranteed by the initial policy approval. Medical, financial, occupational, avocational and other underwriting factors may affect eligibility for additional coverage.

Under the strategy mechanics described in this article, failure to obtain approval for the next planned JUMP may pause future progression rather than automatically eliminating prior successful JUMPs or returning the policy to its original matching-loan level. Actual treatment of an individual policy is governed by the insurance contract, applicable carrier procedures, underwriting decisions and the circumstances of the policy at that time.

A policy owner may potentially be able to apply for additional coverage at a later policy anniversary if circumstances change, but a future application is subject to applicable underwriting requirements and approval. Reapplication does not guarantee approval.

Income, employment, existing insurance, health, driving history, occupation, hazardous duties, hobbies and other factors may be considered under applicable underwriting guidelines. Actual underwriting requirements and decisions are controlled by the insurance company.

Planned death-benefit increases under the JUMP Strategy are intended to create additional policy funding capacity while seeking to maintain the intended non-MEC structure. Increasing a death benefit does not by itself guarantee that a policy will avoid Modified Endowment Contract status. Actual premium timing, policy structure, death benefit, applicable tax rules, policy changes and other factors must be considered.

Matching Indexed Participating Loans are policy loans. They are not free carrier contributions, employer contributions, bonuses, tax credits, guaranteed gains or direct investments in a market index. Under the JUMP Strategy described here, Matching Indexed Participating Loan proceeds are modeled as being redeployed into the same policy as additional funding. Associated policy indebtedness and applicable loan costs remain part of the policy economics.

Existing policy indebtedness associated with prior loan activity does not automatically disappear because a future JUMP is delayed or not approved. Policy loans generally accrue applicable loan charges and can reduce policy values and death benefits and increase lapse risk. Outstanding policy indebtedness generally reduces the net death benefit payable under the insurance contract.

The JUMP Strategy is modeled with applicable loan charges carried forward during the accumulation design rather than requiring the client to pay those charges out of pocket each year. This does not eliminate the economic cost of borrowing, guarantee positive arbitrage or guarantee that policy values will remain sufficient to support outstanding indebtedness.

Indexed universal life insurance does not directly invest in a market index, does not own the underlying index securities and does not receive index dividends. Indexed interest is determined according to applicable policy crediting terms, which may include caps, participation rates, spreads and other provisions.

A 0% indexed-crediting floor does not guarantee that overall policy value cannot decline. Policy charges, cost of insurance, loan costs, withdrawals and other policy mechanics continue to apply. Caps, participation rates, spreads, loan rates and other nonguaranteed elements may change when permitted by the insurance contract.

Policy values from a properly structured and maintained non-MEC life insurance policy may potentially be accessed through withdrawals to basis and policy loans without current income taxation under current federal rules, subject to applicable requirements. Tax treatment can be affected by basis, Modified Endowment Contract status, policy lapse, surrender and other circumstances. A policy that lapses or is surrendered with gain and outstanding indebtedness may create taxable income.

References to the $10,000 annual contribution example, JUMP progression, 6.87% historical indexed-crediting example, 1.87 percentage-point modeled positive spread, modeled effective results of 8.74%, 11.61%, 14.48% and 17.35%, current 5% loan rate, contractual maximum 6% loan rate, approximately 40% more projected retirement income, or up to approximately 300% more projected retirement income are illustrative and are not guarantees of future policy performance, positive arbitrage, policy durability, funding capacity, non-MEC status, future JUMP approval, death benefit or retirement income.

The up-to-approximately-300% projected retirement-income result cited in this article refers to certain modeled comparisons involving the IUL JUMP Strategy and a 401(k), Traditional IRA or comparable tax-deferred retirement strategy. It is not a universal result or guarantee. If a modeled comparison assumes successful future JUMPs, failure to obtain one or more future approvals can materially change the projected result and the comparison should be updated.

The approximately-40% projected retirement-income result refers to certain modeled comparisons involving the JUMP Strategy and the traditional IUL structure being evaluated. It is not a universal result or guarantee. A change in future JUMP progression can alter the projected comparison.

The historical 6.87% indexed-crediting example discussed in this article is based on an analysis of annual S&P 500 price changes from 2006 through 2020, excluding dividends, and applying the stated 10% cap and 0% indexed-crediting floor. Historical results do not predict future policy performance. The modeled effective JUMP results discussed above are not S&P 500 returns, indexed-crediting rates or guaranteed policy returns.

Positive arbitrage is not guaranteed. Periods in which indexed crediting is below the applicable loan cost can produce unfavorable loan economics. Policy charges and other expenses must also be considered when evaluating overall policy performance.

A missed or delayed JUMP can materially change projected funding, policy values, indebtedness, death benefits and retirement-income results. Illustrations should be updated as actual policy performance, underwriting results and other assumptions change.

Policy-specific guarantees, nonguaranteed elements, underwriting requirements, loan provisions, loan rates, caps, participation rates, spreads, crediting methods, expenses, surrender provisions, MEC testing, lapse provisions and death-benefit provisions should be verified against current carrier-approved illustrations and the actual insurance contract.

FPP Financial does not provide tax or legal advice. Consult qualified tax, legal and financial professionals regarding your individual circumstances before purchasing life insurance or implementing any retirement-income strategy discussed here.