How Much Retirement Income Can an IUL Produce?

If you’re considering an indexed universal life policy for retirement, eventually you get to the only number that really matters.

“How much income can this actually give me when I retire?”

Not the death benefit.

Not the illustrated cash value at age 65.

Not a hypothetical indexed-crediting rate.

How much money can you potentially access each year for retirement?

That’s the number I want to see too.

But there isn’t one universal dollar amount that an IUL produces.

A $10,000 annual contribution could produce a very different projected retirement-income result based on when you start, how long you fund it, how the policy is designed, how it actually performs, what loan mechanics are used, and how aggressively you access the policy in retirement.

So instead of asking for one magic number, I would ask:

“Show me exactly what creates my retirement-income number.”

Cash Value Is Not the Same Thing as Retirement Income

This is the first distinction to understand.

Suppose an illustration shows:

$1,000,000 of projected policy value at retirement.

That sounds impressive.

But it does not automatically tell you how much annual retirement income the policy can support.

You still need to know:

• How the money will be accessed
• How much outstanding policy indebtedness already exists
• The applicable policy-loan rate
• What policy charges continue in retirement
• What indexed-crediting assumptions are being used
• How long the income needs to last
• What net death benefit you want to preserve
• How much margin exists if actual results are weaker

That’s why I don’t stop at the accumulation column.

The Real Question Is How Much Spendable Income the Policy Can Support

Imagine two IULs both show $1 million at retirement.

They could still produce different projected retirement-income results.

One may have different loan provisions.

One may have more outstanding indebtedness.

One may have different policy charges.

One may be designed to preserve more death benefit.

One may use a different distribution strategy.

Same headline cash-value number.

Different retirement math.

What Determines How Much Retirement Income an IUL Can Produce?

I would start with these variables:

1. How much money you contribute
2. How many years you contribute
3. Your age when the policy starts
4. Your age when retirement income begins
5. The policy’s actual crediting results
6. Cost of insurance and other policy charges
7. The policy’s loan mechanics
8. The applicable policy-loan rate
9. Existing policy indebtedness
10. How much you access each year
11. How long you need the income
12. How much death benefit you want to preserve

Change one of those variables and the projected income can change.

Change several at once and it can change substantially.

Start With What You Actually Put In

Let’s use a simple example.

Suppose you’re contributing:

$10,000 per year.

If you contribute for five years, that’s a very different accumulation period from contributing for 20 years.

If you start at age 40, that’s different from starting at 60.

Time matters because the policy has more or fewer years to accumulate value before retirement distributions begin.

Starting Earlier Can Give the Strategy More Time

This doesn’t mean everyone needs to start an IUL at 30.

It means time is one of the variables in the math.

If two people contribute the same amount each year but one starts ten years earlier, their projected retirement-income numbers should not be expected to look identical.

Policy Design Matters Too

An IUL designed primarily around death benefit can look different from one structured with cash-value accumulation and future retirement access as major objectives.

Premium funding relative to death benefit matters.

MEC limits matter.

Policy charges matter.

Underwriting matters.

Loan provisions matter.

That’s why saying:

“I own an IUL”

doesn’t tell me enough.

Then There’s the Crediting Side

An IUL can credit interest based in part on the performance of an external index under the policy’s crediting formula.

The policy is not directly invested in the index.

The indexed account can have terms such as:

• A cap
• A floor
• A participation rate
• A spread
• A particular crediting method

Those mechanics affect the amount of indexed interest credited under the contract.

A 0% Floor Doesn’t Tell You Your Retirement Income

This is another common misunderstanding.

If an indexed-crediting strategy has a 0% floor, that generally refers to the applicable indexed-crediting calculation.

It does not mean:

“My entire policy can never go down.”

Cost of insurance can continue.

Administrative and other policy charges can continue.

Policy-loan costs can continue.

Retirement distributions can reduce available values.

So you need the complete policy projection.

Now Add Policy Loans

Many IUL retirement-income strategies use policy loans as part of accessing policy values.

Policy loans create indebtedness against the policy.

They generally have an applicable loan cost.

Outstanding indebtedness can reduce the net death benefit and can affect long-term policy durability.

That means the loan strategy can have a major effect on how much projected retirement income the policy may support.

This Is Where the IUL JUMP Strategy Changes the Calculation

The IUL JUMP Strategy we’re discussing uses a Matching Indexed Participating Loan.

The matching amount is created through policy-loan activity.

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

That’s very different from taking a policy loan and spending the money on a car or vacation.

Why Can That Affect Future Retirement Income?

Because under the strategy mechanics being modeled, associated loan-funded policy value can continue participating in the applicable indexed-crediting strategy while the policy carries the corresponding indebtedness and applicable loan cost.

So instead of modeling only the client’s original contribution, the strategy can model additional loan-funded policy value working inside the policy.

That can change the accumulation and eventual retirement-income projection.

But the Match Is Not Free Money

This needs to be crystal clear.

The Matching Indexed Participating Loan is:

a policy loan.

It creates indebtedness.

It has an applicable loan cost.

The strategy has to prove that the additional modeled economics justify that cost and risk.

Here’s the Basic $10,000 JUMP Example

Suppose the client contributes:

$10,000 per year.

The example progression looks like this:

Year 11 Does Not Mean the Client Writes a $60,000 Check

The client contribution in this example remains:

$10,000.

The additional:

$50,000

comes from Matching Indexed Participating Loan funding.

So the example shows $60,000 of total annual funding, but only $10,000 is the client’s annual out-of-pocket contribution.

The additional funding carries associated policy indebtedness.

That’s Why the Retirement-Income Comparison Needs to Count Every Dollar Correctly

If you’re comparing this strategy with a 401(k), IRA or traditional IUL, don’t pretend the loan-funded amount is the client’s contribution.

It isn’t.

And don’t pretend the associated loan has no cost.

It does.

Show both sides.

How Does the Loan Cost Enter the Retirement-Income Calculation?

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%.

If a retirement-income projection assumes 5%, I also want to see what happens at 6%.

Why?

Because the policy may need to function for decades.

Today’s applicable rate isn’t a promise that the rate never changes.

If the contract allows a higher maximum, put it into the stress test.

Now Look at the Crediting Relationship

Suppose an applicable indexed-crediting result is:

8%.

And the applicable loan cost is:

5%.

The simplified relationship is:

8% – 5% = a favorable 3-percentage-point difference.

That favorable relationship can help the modeled economics associated with participating-loan funding.

But it isn’t guaranteed.

Now Make the Crediting Result 3%

The simplified relationship becomes:

3% – 5% = an unfavorable 2-percentage-point difference.

That puts pressure on the modeled economics.

And at 0% indexed crediting:

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

That’s why you can’t calculate retirement income by assuming positive arbitrage every year.

What About the Historical 6.87% Example?

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

Dividends were excluded because the policy is not directly invested in the S&P 500.

The analysis applied the example strategy’s:

10% cap

and:

0% indexed-crediting floor.

Negative annual price changes were replaced by 0% for purposes of the historical indexed-crediting calculation.

Positive annual price changes above 10% were limited to 10%.

The resulting annual capped-and-floored figures averaged approximately:

6.87%.

Compare 6.87% With the Current 5% Applicable Loan Rate

The simplified modeled relationship is:

6.87% – 5.00% = 1.87 percentage points.

That’s one positive-arbitrage assumption used in the JUMP modeling.

It is not a guaranteed annual spread.

And 6.87% is not a guaranteed future indexed-crediting rate.

How Does That Feed Into the JUMP Model?

Under assumptions used in one JUMP model, the base 6.87% historical indexed-crediting assumption and the modeled positive-arbitrage effect attributed to successive Matching Indexed Participating Loans produced modeled effective results of approximately:

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

Those numbers are not S&P 500 returns.

They are not IUL indexed-crediting rates.

They are not guaranteed policy returns.

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

So How Does This Translate Into Retirement Income?

That’s the next step.

Accumulation creates the pool of policy value and policy economics from which future retirement distributions are modeled.

Then you need to decide:

When does income begin?

How much is accessed?

How long does it continue?

What happens to the policy while you’re taking it?

That’s how you move from an accumulation illustration to an actual retirement-income analysis.

Let’s Use a Simple Hypothetical Example

Suppose a policy reaches retirement with:

$1,000,000 of policy value.

If a model tested a retirement distribution equal to 5% of that value, the first-year amount would be:

$50,000.

At 8%:

$80,000.

At 10%:

$100,000.

At 12%:

$120,000.

Those calculations are easy.

The difficult question is:

“Can the policy actually support that distribution level over the retirement period under the assumptions being tested?”

A Percentage Is Not a Safe Withdrawal Rate Just Because the Math Is Easy

If someone takes 12% of $1 million, that’s $120,000.

That arithmetic does not prove the policy can sustain $120,000 every year.

That’s where policy performance, loan costs, charges, future crediting, indebtedness and longevity come back into the picture.

This is why the next question should never be skipped:

“What happens after I start taking the income?”

The JUMP Strategy Has Modeled Approximately 12% Annual Retirement Distributions Under Specific Assumptions

Under modeling used with the IUL JUMP Strategy, retirement distributions may be modeled at approximately:

12% per year of policy/account value

under specific assumptions.

That is not a universal IUL withdrawal rule.

It is not a guaranteed distribution rate.

It is not a promise that every policy can sustain 12% for life.

It is a modeled distribution level that needs to survive the complete policy analysis.

We’ll Go Deeper Into the 10% and 12% Question Separately

The important point here is that the retirement-income number is not created simply by multiplying cash value by a percentage.

The distribution level has to be tested against the actual policy.

That’s where the difference between a calculation and a retirement strategy shows up.

Retirement Age Can Change the Income Number Dramatically

Suppose one person starts retirement distributions at 60.

Another waits until 70.

The second policy potentially gets another ten years before retirement distributions begin.

But the second person may also have fewer retirement years to fund.

Those two differences can materially change the projected annual income.

Earlier Retirement Creates a Tougher Test

If you want to stop working at 58 instead of 65, the policy may have:

fewer accumulation years,

less time for policy values to develop,

and more years of retirement distributions to support.

That’s why retirement age needs to be part of the income calculation.

Longevity Matters Just as Much

Imagine you retire at 65.

If the projection stops at 80, you’re looking at 15 years of retirement.

If you live to 95, you need 30 years.

That’s twice as long.

So when someone says:

“This policy can give you $100,000 a year,”

my next question is:

“For how long?”

Show Me Age 85, 90 and 95

I want to see:

• Projected annual retirement income
• Policy value
• Cash surrender value
• Outstanding policy indebtedness
• Applicable loan rate
• Net death benefit
• Whether the policy remains projected in force

That’s how you evaluate an income number.

What Happens If You Want to Preserve More Death Benefit?

That can affect how aggressively you access policy values.

Outstanding policy indebtedness generally reduces the net death benefit payable under the contract.

So someone trying to maximize lifetime retirement income may make different choices from someone trying to leave a larger legacy.

Neither objective is automatically right.

But the illustration should reflect the objective you actually care about.

Retirement Income and Legacy Can Pull in Opposite Directions

More money accessed during life can mean less value available later.

Preserving more value for beneficiaries can mean accessing less during retirement.

That’s a real tradeoff.

Don’t hide it behind a giant projected income number.

What About Taxes?

This is one reason people consider IUL retirement-income strategies in the first place.

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.

That can create very different spendable-income math from taking taxable distributions from a Traditional IRA or 401(k).

Gross Income and Spendable Income Are Not the Same Thing

Suppose two strategies both distribute:

$100,000.

If one distribution creates ordinary taxable income and the other is accessed through properly structured policy mechanics without current income taxation under applicable rules, the amount available to spend after taxes can be different.

That’s why retirement-income comparisons need to account for taxes.

Not just gross distributions.

But Don’t Call IUL Income Automatically “Tax-Free”

That phrase can leave out important conditions.

Basis matters.

MEC status matters.

Policy status matters.

Outstanding indebtedness matters.

Lapse and surrender matter.

If a policy with gain and outstanding indebtedness lapses or is surrendered, taxable income can potentially result under applicable tax rules.

So the policy has to be monitored.

Now We Can Talk About the Up-to-300% Comparison

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 major difference.

And it deserves a major amount of scrutiny.

Where Can a Difference Like That Come From?

It isn’t simply:

“The IUL earns more.”

That’s too simplistic.

The modeled retirement-income difference can be affected by:

• The client’s actual contributions
• Matching Indexed Participating Loan funding
• Redeployment of loan proceeds
• Applicable indexed-crediting assumptions
• Positive and negative loan arbitrage
• Policy charges
• Loan rates
• Tax treatment of distributions
• Market and sequence assumptions in the compared strategy
• Retirement distribution structure
• Retirement age
• Longevity

That’s why “300% more projected retirement income” is not the same thing as “300% more return.”

Never Let Someone Turn 300% Into a Return Claim

The modeled comparison is about:

projected retirement income.

It is not 300% more indexed interest.

It is not 300% more S&P 500 performance.

It is not 300% more policy return.

It is not guaranteed.

It is the result of specific modeled comparisons under specific assumptions.

The 300% Isn’t the Sales Pitch. It’s the Question.

If someone shows you that result, ask:

What did I contribute?

What did the compared strategy receive?

What tax assumptions were used?

What loan rate was used?

What indexed-crediting assumption was used?

Were policy charges included?

Were investment costs included on the other side?

How were market losses modeled?

How long did retirement last?

What happened to outstanding policy indebtedness?

Did the policy remain projected in force?

Show me exactly where the difference comes from.

Now Stress-Test the 300% Result

Run the comparison again with the applicable loan rate at:

6%.

Lower the indexed-crediting assumption.

Insert multiple 0% crediting periods.

Remove future JUMPs.

Start retirement earlier.

Extend retirement to age 95 or longer.

Keep all applicable policy charges in the model.

Then see what happens to the projected retirement-income advantage.

If the Advantage Shrinks, That’s Useful Information

The goal of a stress test isn’t to make the strategy look bad.

It’s to find out how much of the projected result comes from assumptions that may not happen.

A strong strategy should be understood under good conditions and bad ones.

What About Approximately 40% More Than a Traditional IUL?

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

Again, that’s not a claim that every JUMP strategy beats every traditional IUL by 40%.

The specific comparison matters.

One reason retirement-income results can differ is the way the Matching Indexed Participating Loan and redeployment mechanics alter the modeled accumulation and loan economics.

But policy costs, loan provisions, crediting assumptions, death-benefit structure, funding and retirement distributions all need to be compared too.

Future JUMPs Are Not Guaranteed

This matters because the modeled retirement-income result may include future JUMPs.

In the example progression, planned JUMPs occur in Years:

3, 5, 7, 9 and 11.

Each future JUMP requires new underwriting and carrier approval for the applicable increase in death benefit.

Health can matter.

Income and employment can matter.

Existing insurance can matter.

Driving history can matter.

Occupation can matter.

Hazardous job duties and risky hobbies can matter.

Future approval should not be treated as guaranteed at initial issue.

What If You Don’t Qualify for the Next JUMP?

Under the strategy mechanics we’ve discussed, a missed JUMP can pause the progression rather than automatically resetting the strategy.

If you’ve already achieved a $30,000 matching-loan level, for example, failure to qualify for the next planned JUMP does not automatically mean the prior successful matching level disappears under the mechanics described.

You may be able to reapply at a later policy anniversary if circumstances improve, subject to actual policy rules and approval.

But the retirement-income projection should be updated.

Run the Retirement-Income Number With No More JUMPs

This is one of my favorite tests.

If the illustration assumes several future JUMPs, remove them.

What happens to projected retirement income?

Does the strategy still produce a result you would consider worthwhile?

That’s information you should have before making the decision.

Don’t Forget Policy Charges

Retirement-income projections should account for applicable:

• Cost of insurance
• Administrative charges
• Rider charges
• Loan costs
• Other policy expenses

If someone talks only about indexed crediting and ignores the rest of the policy, you’re not looking at the whole picture.

Ask to See the Income in Dollars

Percentages are useful.

But retirement happens in dollars.

I would ask for:

Projected income at 60.

Projected income at 65.

Projected income at 70.

Then look at what happens if you take that income through age 85, 90 and 95.

Then Ask to See the Bad Version

Not just the pretty illustration.

Ask:

“Show me what happens if the policy doesn’t perform as illustrated.”

Lower the crediting.

Raise the loan cost within the applicable contractual limit.

Keep the charges.

Extend longevity.

Then look at the income again.

That’s the Number I Would Trust More

Not because the lower number is automatically what will happen.

Because now you understand the range of outcomes the strategy may face.

What Should You Ask Before Relying on an IUL for Retirement Income?

1. How much am I contributing out of pocket?
2. How many years am I funding the policy?
3. What retirement age is being modeled?
4. What policy value is projected at retirement?
5. What outstanding indebtedness exists at retirement?
6. How is retirement income being accessed?
7. What applicable loan rate is assumed?
8. What is the maximum applicable loan rate?
9. What indexed-crediting assumption is being used?
10. What happens during 0% crediting periods?
11. What policy charges are included?
12. How much annual retirement income is projected?
13. How long is that income projected to continue?
14. What happens if I live to 95?
15. What happens if I retire early?
16. What happens if future JUMPs aren’t approved?
17. What net death benefit remains?
18. What could cause the policy to lapse?

And Then Ask the Question That Cuts Through Everything

“How much do I put in, how much can I potentially take out, and what assumptions have to happen for that result to work?”

That’s retirement math.

Because You’re Not Really Buying a Projected Income Number

You’re trying to buy confidence that your retirement plan can support the life you’re planning.

You want to know whether you can travel.

Whether you can stay in your home.

Whether healthcare expenses will throw everything off.

Whether you’ll still have choices in your 80s.

That’s why the annual income number feels so personal.

The Fear Isn’t Just Running Out of Money

It’s losing control.

It’s realizing at 78 that you took too much too early.

It’s realizing the illustration you trusted at 58 didn’t hold up the way you expected.

It’s thinking:

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

You Don’t Want Your Retirement Plan to Become Your Kids’ Problem

For a lot of people approaching retirement, independence is part of their identity.

You’ve handled your own finances for decades.

You don’t want to reach your 80s and have your children trying to rescue a retirement strategy they never understood.

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

“We should be able to handle this ourselves.”

That’s why I would rather see a conservative stress test now than a surprise later.

The Bottom Line

How much retirement income can an IUL produce?

The answer is determined by the actual policy design and the math behind it.

Your contribution matters.

Your age matters.

Your accumulation period matters.

Crediting matters.

Policy charges matter.

Loan mechanics matter.

Loan rates matter.

Retirement age matters.

Distribution level matters.

Longevity matters.

And if you’re using the IUL JUMP Strategy, the Matching Indexed Participating Loan mechanics and future JUMP assumptions can materially change the projection.

So don’t ask someone to tell you what an IUL “usually pays” in retirement.

Ask them to show you what your numbers look like.

How We Calculate Retirement Income at FPP Financial

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

We’ll start with what you’re actually contributing.

We’ll look at the policy design.

We’ll model the applicable Matching Indexed Participating Loan mechanics when the JUMP Strategy is being evaluated.

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

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

We’ll test lower indexed crediting.

We’ll test multiple 0% periods.

We’ll include applicable policy charges.

We’ll test future JUMPs.

We’ll test no future JUMPs.

We’ll test different retirement ages.

We’ll test different retirement-income levels.

We’ll extend the projection through advanced ages.

Then we’ll compare the projected spendable retirement income against the other retirement strategies you’re considering.

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

Want to See How Much Retirement Income Your Numbers Could Potentially Produce?

That’s the calculation worth running.

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.

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

Those are modeled results, not guarantees.

Your result needs to be calculated from your funding, timing, policy design, loan mechanics, assumptions and retirement goals.

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

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

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 Does Redeploying an IUL Policy Loan Change the Retirement Math?
• How Do IUL Policy Loans Affect Cash Value Over 20 or 30 Years?
• 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, mutual fund, index fund, savings account, or direct investment in a market index.

Projected retirement income from an indexed universal life policy is not guaranteed unless specifically identified as guaranteed under the insurance contract. Actual retirement-income capacity is affected by policy design, premiums, policy values, indexed-crediting results, policy charges, cost of insurance, loan provisions, loan rates, withdrawals, policy indebtedness, retirement timing, distribution amounts, longevity, death-benefit objectives, and other factors.

Examples calculating a percentage of hypothetical policy value, including examples using 5%, 8%, 10%, or 12%, are mathematical illustrations only. They do not represent guaranteed retirement distributions or universal safe withdrawal rates and do not establish that a particular policy can sustain the illustrated distribution for any period.

References to approximately 12% annual retirement distributions describe a modeled distribution level used under specific assumptions in the JUMP Strategy analysis. They should not be interpreted as a universal safe withdrawal rate, guaranteed distribution rate, or assurance that an indexed universal life policy can sustain that distribution level for life or any particular number of years.

Policy loans create indebtedness under the applicable insurance contract and generally accrue applicable loan charges. Loan provisions, loan rates, repayment provisions, treatment of values associated with outstanding loans, and treatment of unpaid loan charges vary by insurance contract. Actual policy provisions control.

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.

References to loan-funded policy value continuing to participate in an applicable indexed-crediting strategy describe the strategy mechanics being modeled and should be verified against the applicable current approved illustration and insurance contract. Policy-specific loan and crediting provisions govern actual results.

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 maximum loan provisions should be verified against current approved policy information and the actual insurance contract.

Simplified examples comparing indexed crediting with an applicable policy-loan cost illustrate only the economic relationship between the two rates. They do not represent the policy’s complete return, guaranteed profit or loss, or exact dollar effect on policy values. Actual results are affected by policy values, outstanding indebtedness, timing, crediting mechanics, cost of insurance, administrative expenses, other policy charges, withdrawals, distributions, and other contractual factors.

Positive arbitrage is not guaranteed. Periods in which applicable indexed crediting is below the applicable policy-loan cost can create unfavorable loan economics. A 0% indexed-crediting result with a 5% applicable loan cost represents a simplified unfavorable 5-percentage-point relationship, not a guaranteed 5% loss on the entire policy.

A 0% indexed-crediting floor applies to the applicable indexed-crediting calculation under the example discussed and does not guarantee that overall policy value cannot decline. Cost of insurance, administrative expenses, policy-loan costs, withdrawals, retirement distributions, and other policy mechanics can continue to affect policy values during a 0% indexed-crediting period.

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

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. Negative annual price changes were replaced by 0% and positive annual price changes above 10% were capped at 10% for purposes of that historical analysis. The resulting annual capped-and-floored figures averaged approximately 6.87%. Historical results do not predict future policy performance and should not be interpreted as a guaranteed future indexed-crediting rate, compound annual growth rate, net policy return, or historical total return of the S&P 500.

The simplified 1.87-percentage-point modeled positive spread represents the mathematical difference between the 6.87% historical indexed-crediting result used in the referenced model and the current 5% applicable policy-loan rate. It is not a representation of net policy return after cost of insurance, administrative expenses, other policy charges, withdrawals, distributions, or other factors and is not guaranteed to occur.

The modeled effective JUMP results of approximately 8.74%, 11.61%, 14.48%, and 17.35% are not S&P 500 returns, indexed-crediting rates, compound annual growth rates, net returns after policy charges, participation rates, cap rates, or guaranteed policy returns. They are modeled effective results under 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.

Death-benefit increases associated with planned JUMPs are designed to create additional funding capacity under the intended policy design while managing applicable MEC limits. Increasing death benefit does not by itself guarantee non-MEC status. Actual policy design, premium funding, tax rules, underwriting approval, applicable procedures, and contract provisions control.

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 rules govern each case, and retirement-income projections should be updated when future JUMP assumptions change.

Policy loans generally 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. A policy that lapses or is surrendered with gain and outstanding indebtedness may create taxable income under applicable tax rules.

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.

Comparisons between life-insurance policy access and distributions from qualified retirement accounts should account for differences in contribution rules, taxation, investment structure, insurance costs, liquidity, policy charges, market exposure, plan protections, distribution rules, and other material characteristics. Gross distributions and spendable after-tax income are not interchangeable measurements.

Life insurance death benefits are generally received income-tax-free under current federal law, subject to applicable exceptions and individual circumstances. Outstanding policy indebtedness generally reduces the net death benefit payable under the contract.

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, policy-loan arbitrage, net policy return, or S&P 500 performance. Funding, taxes, market assumptions, policy-loan mechanics, loan rates, indexed-crediting results, policy charges, future JUMPs, retirement timing, distributions, longevity, and other assumptions can materially alter projected results.

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. Funding, indexed-crediting assumptions, policy charges, loan provisions, loan costs, future JUMPs, death-benefit structure, retirement distributions, and longevity can materially alter the comparison.

Comparisons should use clearly stated and reasonably consistent assumptions appropriate to each strategy. Differences in contributions, taxes, investment returns, policy crediting, costs, loan mechanics, retirement age, distribution timing, and longevity can materially affect the outcome.

Policy-specific guarantees, nonguaranteed elements, underwriting requirements, death-benefit options, MEC limits, cost-of-insurance provisions, policy charges, surrender provisions, loan provisions, loan rates, caps, participation rates, spreads, crediting methods, lapse provisions, repayment options, 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, taking policy loans, accessing policy values, or implementing any retirement-income strategy discussed here.