How Is IUL Indexed Interest Actually Calculated? A Step-by-Step Example

Someone shows you an indexed universal life illustration and says:

“Your money has the potential to earn indexed interest based on the S&P 500.”

Okay.

But how do we actually get from what the index did to the number credited under the policy?

That’s where a lot of IUL conversations get fuzzy.

The S&P 500 might be up 14%.

Your indexed account might be credited 10%.

Your total policy cash value might increase by something other than 10%.

And if you’re looking at an IUL JUMP Strategy illustration, you might see another modeled effective number entirely.

Those numbers are not interchangeable.

So let’s walk through the calculation one piece at a time.

First, an IUL Is Not Directly Invested in the S&P 500

This is the starting point.

An indexed universal life policy can use the performance of an external index as part of a formula for determining potential indexed interest.

That does not mean your indexed account owns shares of the companies in the S&P 500.

It doesn’t mean you own an S&P 500 index fund.

And it doesn’t mean your policy automatically receives whatever return someone reports for the S&P 500 that year.

The index is a reference point used in the applicable crediting formula.

There Is No Single Formula for Every IUL

Before we start calculating anything, this needs to be clear.

Different indexed-crediting strategies can use different:

Indexes
Measurement periods
Crediting methods
Participation rates
Caps
Spreads
Floors
Other contractual provisions

So the examples below are intentionally simplified.

The actual insurance contract controls the calculation for a specific policy.

Step 1: Identify the Crediting Period

The policy needs a defined period over which the applicable index movement will be measured.

For a simplified annual point-to-point example, imagine the measurement begins on one policy date and ends one year later.

Suppose the index starts at:

4,000.

One year later, it ends at:

4,400.

Step 2: Calculate the Applicable Index Change

In our simplified example:

(4,400 – 4,000) ÷ 4,000 = 10%.

So the index increased 10% over that measurement period.

But we’re not finished.

That 10% index change is not automatically the amount of indexed interest credited to the policy.

Step 3: Apply the Participation Rate If the Strategy Uses One

Suppose the applicable participation rate is:

80%.

The simplified calculation becomes:

10% × 80% = 8%.

So after applying the participation rate, we’re at 8%.

If the participation rate were 100%, the simplified result at this stage would remain 10%.

Step 4: Apply the Cap If the Strategy Uses One

Now suppose the strategy has a:

7% cap.

Our 8% result from the previous step would be limited to:

7%.

Again, this is a simplified example. The exact order in which contractual provisions apply is controlled by the actual crediting method.

Step 5: Account for a Spread If the Strategy Uses One

A different crediting strategy might use a spread.

Suppose the applicable index result is 10% and the strategy uses a 2% spread in a simplified subtraction-based formula.

The calculation might be:

10% – 2% = 8%.

Don’t automatically add a spread to a strategy that doesn’t have one.

And don’t assume every policy applies a spread in exactly the same way.

You follow the actual contract.

Step 6: Apply the Floor Where Applicable

Now let’s make the index year ugly.

Suppose the index starts at 4,000 and ends the measurement period at 3,200.

That’s a:

20% decline.

If the applicable indexed-crediting strategy has a 0% floor, the applicable indexed-crediting result may be:

0%.

Not -20%.

But this is where another major misunderstanding begins.

A 0% Indexed-Crediting Result Does Not Mean Your Policy Value Cannot Go Down

The floor applies to the applicable indexed-crediting calculation.

It does not eliminate policy economics.

The policy can still have:

Cost of insurance
Administrative charges
Other policy charges
Policy-loan costs
Withdrawals
Outstanding policy indebtedness

So a policy can have 0% indexed interest for a period while total policy value still declines.

This Gives Us Four Different Numbers to Keep Separate

Let’s stop here because this distinction matters.

Number 1: Index change.

What happened to the referenced index under the applicable measurement method?

Number 2: Indexed-crediting rate.

What rate results after the applicable participation rate, cap, spread, floor, and other crediting provisions are applied?

Number 3: Overall change in policy value.

What happened after indexed interest, premiums, policy charges, loans, withdrawals, and other policy mechanics are considered?

Number 4: Modeled effective strategy result.

If you’re analyzing the IUL JUMP Strategy, what broader modeled result is being attributed to the strategy’s combined mechanics?

Those are four different questions.

Here’s Why Mixing Them Up Creates Bad IUL Sales Pitches

Imagine the S&P 500 rises 18%.

Someone says:

“The market made 18%, so your IUL made 18%.”

That could be wrong.

Maybe a cap applied.

Maybe a participation rate applied.

Maybe a spread applied.

Maybe the applicable index calculation itself differs from the number they’re quoting.

Then policy charges still need to be considered.

You cannot jump from a market headline to a policy result.

Let’s Run a Simple 10% Cap and 0% Floor Example

For the next examples, assume a simplified indexed-crediting strategy with:

100% participation rate

10% cap

0% indexed-crediting floor

No spread in this simplified example

Now let’s see what happens across several different index years.

If the Index Is Up 6%

At a 100% participation rate:

6% × 100% = 6%.

That’s below the 10% cap.

So the simplified indexed-crediting result is:

6%.

If the Index Is Up 10%

The simplified indexed-crediting result is:

10%.

We’re right at the cap.

If the Index Is Up 22%

The index increased 22%.

But our assumed cap is 10%.

So the simplified indexed-crediting result is limited to:

10%.

The policy did not receive 22% indexed interest in this example.

If the Index Is Down 12%

The index result is negative.

With our assumed 0% indexed-crediting floor, the simplified indexed-crediting result becomes:

0%.

Again, that does not mean the overall policy value is guaranteed to remain unchanged.

Now You Can See What the Cap and Floor Actually Do

They reshape the index results used in the simplified crediting calculation.

A large positive index result can be limited by the cap.

A negative index result can be limited by the floor.

That’s very different from directly owning an index fund.

What About Dividends?

This is another place where comparisons can go wrong.

If the indexed-crediting calculation references S&P 500 price movement, don’t automatically add the S&P 500’s dividends to the policy’s indexed-crediting result.

The indexed account does not own the underlying S&P 500 stocks.

So if you’re comparing an IUL with direct stock-market investing, you need to make sure you’re not quietly giving one side dividends and pretending the other side receives them the same way.

Now Let’s Look at the Historical 6.87% Example

One historical analysis used in our JUMP modeling looked at annual S&P 500 price changes from 2006 through 2020.

Dividends were excluded.

For that historical analysis, the annual price changes were subjected to a:

10% cap

and:

0% indexed-crediting floor.

So if an annual S&P 500 price change was negative, the historical indexed-crediting calculation used 0% for that year.

If the annual price change was positive but above 10%, the calculation used 10%.

If it was positive and between 0% and 10%, the result remained within that range.

Then Those Annual Capped-and-Floored Results Were Averaged

The resulting historical average indexed-crediting result was approximately:

6.87%.

That’s where the number came from.

What Does 6.87% NOT Mean?

It does not mean:

The S&P 500 historically returned 6.87%
Every IUL earns 6.87%
The policy is guaranteed to earn 6.87%
Future indexed crediting will average 6.87%
Overall policy cash value grows at exactly 6.87%

It is a historical indexed-crediting calculation based on the specific assumptions and period used in that analysis.

Change the Formula and You Can Change the Historical Result

Use a different cap and the result can change.

Use a different participation rate and the result can change.

Use a spread and the result can change.

Use another index and the result can change.

Use another measurement period and the result can change.

Use another historical period and the result can change.

That’s why historical backtesting needs to show its assumptions.

Now Let’s Bring in the IUL JUMP Strategy

This is where understanding indexed interest becomes even more important.

The IUL JUMP Strategy uses a Matching Indexed Participating Loan.

Under the strategy we’re discussing, 100% of the matching amount is created as a policy loan.

The loan proceeds are then redeployed into the same policy as additional funding.

The matching amount is not free money.

It isn’t a carrier contribution.

It isn’t an employer match.

And it isn’t a tax credit.

Here’s a Simple Funding Example

Suppose the client contributes:

$10,000 per year.

Years 1 and 2 are funded with the client’s $10,000 annual contribution.

In Year 3, under the example JUMP progression, the client contributes $10,000 and a $10,000 Matching Indexed Participating Loan is created and redeployed into the policy.

That produces:

$10,000 client contribution + $10,000 Matching Indexed Participating Loan = $20,000 total annual funding shown.

Then the Matching Level Can Progress

In the example schedule:

Year 3: $10,000 client contribution + $10,000 matching loan = $20,000 total funding shown
Year 5: $10,000 client contribution + $20,000 matching loan = $30,000 total funding shown
Year 7: $10,000 client contribution + $30,000 matching loan = $40,000 total funding shown
Year 9: $10,000 client contribution + $40,000 matching loan = $50,000 total funding shown
Year 11: $10,000 client contribution + $50,000 matching loan = $60,000 total funding shown

The client is not writing a $60,000 check in Year 11.

The client’s annual contribution in this example remains $10,000.

The additional amount shown comes from Matching Indexed Participating Loan activity.

And the Loans Accumulate

A later JUMP does not simply erase the prior policy loan.

The loan activity builds on the outstanding loan structure.

That matters because policy indebtedness and loan costs remain part of the strategy.

Now Think of the Policy as Two Buckets

Bucket 1: client-funded dollars.

Bucket 2: accumulated Matching Indexed Participating Loan dollars redeployed into the policy.

Under the example we’re discussing, both buckets have the same potential to participate in the applicable indexed-crediting strategy with the stated:

10% cap and 0% indexed-crediting floor.

But Bucket 2 carries the applicable policy-loan cost.

That’s Why Indexed Interest Matters So Much to the Loan-Funded Bucket

With the policy structure we currently use for the IUL JUMP Strategy, the applicable loan rate is currently:

5%.

The applicable loan feature has a contractual maximum loan rate of:

6%.

So one piece of the analysis is the relationship between the indexed-crediting result and the applicable policy-loan cost.

Use the 6.87% Historical Example

Under the historical assumptions we’ve already discussed:

6.87% historical average indexed-crediting result

minus:

5.00% current applicable policy-loan rate

equals:

1.87 percentage points of modeled positive spread.

That’s an economic comparison.

It is not another indexed-crediting formula.

This Is Where the Word “Spread” Can Get Confusing

Post #58 covered an indexed-crediting spread.

That’s a component that can be used inside an indexed-crediting formula.

The 1.87-percentage-point positive spread in this JUMP example is something different.

It’s simply the mathematical difference between the 6.87% historical indexed-crediting result and the current 5% applicable loan rate used in the model.

Don’t mix the two.

What If Indexed Crediting Is 8%?

Against a 5% applicable loan cost, the simplified difference would be:

8% – 5% = 3 percentage points.

Favorable in that simplified comparison.

What If Indexed Crediting Is 4%?

Against the same 5% loan cost:

4% – 5% = an unfavorable 1-percentage-point difference.

What If Indexed Crediting Is 0%?

Against a 5% loan cost:

0% – 5% = an unfavorable 5-percentage-point difference.

That’s why the Matching Indexed Participating Loan does not guarantee positive arbitrage.

The Loan Cost Does Not Simply Get Subtracted From the Policy’s Crediting Rate

Be careful here.

These simplified subtraction examples are being used to illustrate the economic relationship between an indexed-crediting result and a policy-loan cost.

They do not mean the insurance company literally calculates your indexed interest and then simply subtracts the loan rate from it as the policy’s contractual crediting formula.

Indexed-crediting mechanics and policy-loan accounting are separate policy mechanics.

That Distinction Is Huge

Otherwise someone could see:

10% indexed crediting and a 5% loan rate

and say:

“So the policy earned 5%.”

That’s too simplistic.

You need to look at where values are held, what amounts are participating, the actual policy indebtedness, policy charges, and the contract’s loan mechanics.

Now What About the 8.74%, 11.61%, 14.48%, and 17.35% Numbers?

Under assumptions used in one JUMP model, the combination of the base indexed-crediting assumption and the modeled 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 numbers are not the policy’s indexed-crediting rates.

Read that again.

They are not indexed-crediting rates.

A 17.35% Modeled Effective Result Does Not Mean the Policy Credited 17.35% From the Index

It doesn’t mean the S&P 500 returned 17.35%.

It doesn’t mean the cap became 17.35%.

It doesn’t mean the participation rate became 17.35%.

It doesn’t mean the policy guarantees 17.35%.

Under the assumptions used in that JUMP model, it is a broader modeled effective result attributed to the interaction of the base indexed-crediting assumption and the modeled effect of successive Matching Indexed Participating Loans, before accounting for applicable policy charges and other factors.

Here’s the Cheat Sheet

If you remember nothing else from this article, remember this:

S&P 500 price change: What happened to the referenced index price over the applicable period.
Indexed-crediting result: What remains after the applicable policy crediting formula is applied.
Overall policy-value change: What happens after indexed interest and the rest of the policy economics are considered.
Policy-loan rate: The applicable cost associated with policy indebtedness.
Modeled positive spread: A mathematical comparison between a modeled indexed-crediting result and loan cost.
Modeled effective JUMP result: A broader strategy-modeling result, not an indexed-crediting rate.

Why Does Any of This Matter for Retirement Income?

Because eventually you’re not looking at an illustration.

You’re living on the money.

During accumulation, you may be contributing money and building policy value.

In retirement, contributions may stop and distributions may begin.

Now the difference between what was illustrated and what actually happened matters a lot more.

Suppose the Illustration Assumed Stronger Indexed Crediting Than the Policy Actually Experiences

Projected cash value can be lower.

Projected loan economics can be less favorable.

Outstanding indebtedness can put more pressure on policy durability.

The projected retirement distribution may need to be reduced.

That’s why I don’t want someone blindly following a retirement-income number printed 15 years earlier.

Rerun the Policy Before Retirement

Use actual policy values.

Use actual outstanding indebtedness.

Use current applicable loan provisions.

Look at current policy charges.

Then model the retirement distribution again.

The original illustration was a projection.

Retirement requires an updated calculation.

Now Stress-Test It

Don’t just rerun the favorable scenario.

Run a lower indexed-crediting assumption.

Include weak or 0% crediting periods.

Run the current applicable 5% loan rate.

Then run the applicable contractual maximum 6% loan rate.

Extend the retirement horizon to age 95 or longer.

Test the retirement distributions.

See what happens.

Then Remove Future JUMPs

Future JUMPs require future underwriting and approval.

They aren’t guaranteed at initial policy issue.

If the original projection assumes successful JUMPs in Years 3, 5, 7, 9, and 11, run another projection where the progression stops earlier.

Maybe the client qualifies through Year 7 but doesn’t qualify for the Year 9 increase.

Under the mechanics we’re discussing, that missed JUMP can pause the progression at the matching-loan level already achieved rather than automatically resetting the entire strategy.

But the retirement projection needs to be rerun.

This Is Where the Up-to-300% Number Has to Prove Itself

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 large projected difference.

So don’t just stare at the final income number.

Work backward.

Ask Exactly What Indexed-Crediting Assumption Was Used

What index?

What measurement method?

What cap?

What participation rate?

What spread, if applicable?

What floor?

What historical or illustrated crediting assumption?

What policy charges?

What loan rate?

How many future JUMPs?

What retirement distribution?

How long does the model run?

Then Make the Assumptions Worse

Lower the crediting assumption.

Increase the modeled loan rate to the applicable contractual maximum.

Remove future JUMPs.

Extend longevity.

Then compare the retirement income again.

If the strategy still looks compelling, now you have something worth discussing.

The 300% Is Not a Crediting-Rate Claim

The up-to-approximately-300% figure does not mean:

The IUL credits 300% more interest
The IUL earns 300% more investment return
The policy receives 300% of the S&P 500
The JUMP Strategy has a 300% participation rate
The strategy guarantees 300% more retirement income

It refers to projected retirement income in certain modeled comparisons.

And Indexed Crediting Is Only One Part of That Comparison

The modeled retirement-income difference can be affected by:

Contributions
Employer contributions where applicable
Market-return assumptions
Taxes
Investment expenses
Indexed-crediting assumptions
Caps
Participation rates
Spreads
Floors
Policy charges
Policy-loan costs
Matching Indexed Participating Loan mechanics
Future JUMPs
Retirement-distribution timing
Longevity

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

Where did the difference come from?

What About 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.

Again, the comparison has to be apples to apples.

If the two policies use different indexed-crediting assumptions, you need to show that.

If they have different caps, show that.

If they use different participation rates or spreads, show that.

If the loan provisions are different, show that.

If policy charges differ, show that.

Otherwise you’re comparing final numbers without understanding what created them.

What Should You Ask When Someone Shows You an IUL Crediting Example?

What index is being referenced?
What exact crediting method is being used?
What dates define the measurement period?
What index value is used at the beginning?
What index value is used at the end?
Are dividends included?
What participation rate applies?
What cap applies?
Does a spread apply?
What floor applies?
In what order are those provisions applied?
Which of those terms are guaranteed?
Which can change?
What does the actual contract say?
How does the resulting indexed-crediting rate translate into policy value?
What policy charges still apply?
What policy loans are outstanding?
What loan rate applies?
How does all of that affect projected retirement income?

The Most Important Question Might Be the Simplest

“Can you show me the calculation?”

Not the brochure.

Not the headline.

Not the final retirement-income number.

The calculation.

Start with the index.

Show me every step.

Then show me how that result flows through the policy.

Because Retirement Is Too Important for Mystery Math

If you’re 55 or 60, you don’t need another financial product you only half understand.

You need to know what can change.

You need to know what isn’t guaranteed.

You need to know what happens when the numbers don’t cooperate.

Because underneath all the percentages is a much more personal thought:

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

You Want to Know the Plan Can Be Explained Without Your Kids Having to Rescue It Later

That’s where the emotional side of retirement planning shows up.

You want to remain independent.

You want to understand your own strategy.

You want to make the decision yourselves.

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

“We should be able to handle this ourselves.”

Then don’t accept a retirement strategy that only makes sense when someone is standing in front of you clicking through an illustration.

You should be able to explain the basic math back to yourself.

The Bottom Line

IUL indexed interest is calculated according to the specific indexed-crediting method defined by the policy.

That process can involve:

Measuring an index over a defined period.

Applying a participation rate.

Applying a cap.

Applying a spread where applicable.

Applying a floor.

Then crediting interest according to the policy’s contractual methodology.

But the indexed-crediting rate is not automatically the same as the index return.

And it is not automatically the same as the overall change in policy value.

How We Run the Math at FPP Financial

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

I don’t want to tell you:

“The policy is linked to the S&P 500 and has a 0% floor.”

That’s not enough.

I want to show you how the crediting calculation works.

We’ll look at the index.

We’ll look at the cap.

We’ll look at the participation rate.

We’ll look at the spread where applicable.

We’ll look at the floor.

We’ll look at policy charges.

We’ll look at the Matching Indexed Participating Loan mechanics.

We’ll look at the current applicable 5% loan rate.

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

We’ll look at future JUMP assumptions.

We’ll look at retirement distributions.

Then we’ll compare the projected retirement income against the alternatives you’re actually considering.

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

Want to See the IUL Calculation Instead of Just Hearing the Sales Pitch?

That’s exactly what we can do.

Start with the index movement.

Apply the actual crediting assumptions.

Then follow the numbers all the way through the policy.

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.

But that number means very little if you can’t see how the model got there.

Don’t just believe the 300% number. Make the strategy prove where the difference comes from with the math.

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

Show me exactly where the difference comes from.

Let the math do the talking.

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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, mutual fund, index fund, or direct investment in a market index.

Indexed-crediting calculations vary by policy, indexed account, crediting method, index, measurement period, and contract. Caps, participation rates, spreads, floors, bonuses, and other provisions may be applied differently from the simplified examples in this article. The actual insurance contract and current carrier-approved materials govern a specific policy.

Indexed universal life insurance does not directly invest policy cash value in the S&P 500 or another market index and does not provide the policyholder with ownership of the underlying index securities through the indexed account. Indexed-crediting results should not be confused with market-index returns or direct investment performance.

An indexed-crediting strategy that references the S&P 500 generally does not credit S&P 500 dividends as though the policy directly owned the underlying stocks. Direct investments and investment funds have different market exposure and can handle dividends, expenses, taxes, and distributions differently.

Caps, participation rates, spreads, bonuses, crediting methods, and other nonguaranteed policy elements may change if permitted under the insurance contract. Current values or terms should not be assumed to remain unchanged for the life of a policy. Policy-specific guarantees and contractual limits should be verified using current approved policy information and the actual insurance contract.

A 0% indexed-crediting floor applies to the applicable indexed-crediting calculation under examples discussed and does not guarantee that overall policy value cannot decline. Policy charges, cost of insurance, loan costs, withdrawals, and other policy mechanics continue to apply.

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 and should not be interpreted as a guaranteed future indexed-crediting rate, policy return, or the historical total return of the S&P 500.

The 6.87% historical result is tied to the specific assumptions and methodology used in the referenced analysis. A different participation rate, cap, floor, spread, index, crediting method, measurement period, or historical period can produce materially different results.

Life insurance illustrations contain assumptions and may include both guaranteed and nonguaranteed elements. Nonguaranteed values, indexed-crediting assumptions, policy values, death benefits, and retirement-income projections are not promises of future results. Actual policy performance can differ materially from illustrated results.

Matching Indexed Participating Loans are policy loans. They are not free contributions, employer matches, bonuses, tax credits, guaranteed gains, or direct investments in a market index. Under the 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.

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.

With the policy structure discussed in this article, the applicable loan rate is currently 5%, with a contractual maximum loan rate of 6% for the applicable loan feature. The current applicable rate should not be interpreted as a guarantee that the rate will remain at 5%. Current and guaranteed loan provisions should be verified against current approved policy information and the actual insurance contract.

Positive arbitrage is not guaranteed. Periods in which indexed crediting is below the applicable loan cost can produce unfavorable loan economics. The simplified subtraction of an indexed-crediting result and policy-loan rate in this article illustrates an economic relationship and should not be interpreted as the contractual method used to calculate indexed interest, loan interest, cash value, or overall policy performance.

The modeled effective JUMP results of approximately 8.74%, 11.61%, 14.48%, and 17.35% are not S&P 500 returns, participation rates, cap rates, indexed-crediting rates, or guaranteed policy returns. They are modeled effective results under the assumptions used in the referenced JUMP analysis, before accounting for applicable policy charges and other factors.

Future JUMPs and associated death-benefit increases are subject to future underwriting and approval. Initial policy approval and prior successful JUMPs do not guarantee future increases. Health, income, employment, existing insurance, driving history, occupation, hazardous job duties, risky hobbies, and other applicable underwriting factors may affect eligibility for additional coverage.

Under the strategy mechanics described, failure to qualify for a future JUMP does not necessarily mean prior successful JUMPs or the previously achieved matching-loan level automatically disappear. Actual policy and carrier rules govern each case, and retirement-income projections should be updated when future JUMP assumptions change.

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, MEC status, policy lapse, surrender, outstanding indebtedness, and other circumstances. A policy that lapses or is surrendered with gain and outstanding indebtedness may create taxable 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 and should not be interpreted as 300% more investment return, indexed interest, S&P 500 performance, or an indexed-crediting rate. Results can change materially with contributions, employer contributions, market-return assumptions, dividends, taxes, investment fees, indexed-crediting assumptions, caps, participation rates, spreads, policy charges, loan costs, future JUMPs, distribution timing, and longevity.

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. Differences in indexed-crediting methods, caps, participation rates, spreads, loan mechanics, policy charges, funding, future JUMPs, and retirement distributions can materially alter the comparison.

Comparisons between an IUL and a 401(k), IRA, brokerage account, index fund, traditional IUL, or another retirement strategy should use clearly stated assumptions appropriate to each strategy. Direct investments and retirement accounts have different market exposure, costs, tax characteristics, and distribution mechanics from life insurance.

Policy-specific guarantees, nonguaranteed elements, underwriting requirements, death-benefit options, MEC limits, loan provisions, loan rates, caps, participation rates, spreads, crediting methods, policy charges, surrender provisions, lapse provisions, and distribution mechanics should be verified against current 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 or modifying life insurance or implementing any retirement-income strategy discussed here.

How Is IUL Indexed Interest Actually Calculated?