IUL for Business Owners: When Does It Make Sense for Retirement?

Ask a business owner how much they’re worth and you may get an impressive number.

Then ask a different question:

“How much of that wealth can actually pay you every month if you stop working?”

Now the conversation changes.

You may own a company worth $2 million.

You may have equipment.

Inventory.

Receivables.

Real estate.

A healthy income.

Maybe even a seven-figure net worth.

But that doesn’t automatically mean you have a retirement-income plan.

For many business owners, the business became the retirement plan without anyone ever making a conscious decision for that to happen.

That’s where indexed universal life can become worth evaluating.

Not as a replacement for the business.

Not automatically as a replacement for a 401(k), Solo 401(k), SEP IRA, or investment account.

And definitely not because someone showed you a giant illustration.

The question is whether an IUL adds something useful to the retirement system you’ve already built.

The Business Owner’s Retirement Problem Is Different

An employee may spend thirty years putting money into a 401(k) while someone else runs the company.

A business owner is often doing something completely different.

Extra cash goes back into the business.

You hire another employee.

Buy another truck.

Open another location.

Increase inventory.

Buy equipment.

Pay down business debt.

Invest in marketing.

And every year you tell yourself:

“I’ll put more toward retirement once the business gets to the next level.”

Then the next level comes with another expense.

Meanwhile, the Business Keeps Becoming a Bigger Percentage of Your Net Worth

That can work beautifully while the company is growing.

But eventually you have to answer a harder question.

How does business value become retirement income?

You can sell the company.

Keep ownership and take distributions.

Transfer it to family.

Bring in management.

Sell part of it.

Or continue working longer.

Each path has its own risks.

“I’ll Just Sell the Business” Is Not a Complete Retirement Plan

Maybe you will sell it.

Maybe you’ll get exactly the price you want.

But don’t build a thirty-year retirement around the assumption that the sale happens exactly when you want, at exactly the valuation you want, with exactly the tax outcome you expect.

Businesses don’t trade like stocks.

You can’t click a button on Tuesday morning and liquidate 4% of your company to pay for groceries.

Your Business Can Be Valuable and Illiquid at the Same Time

That’s the contradiction.

On paper, you’re wealthy.

In real life, much of the wealth may be tied to an operating company.

You may have a great income while you’re working.

But the income is connected to the thing you’re eventually trying to stop doing.

That’s why I like to separate:

Business wealth

from:

Retirement-income assets.

Where Could an IUL Fit?

An indexed universal life policy can potentially create another bucket with a different set of characteristics.

Depending on the policy design and actual contract, those characteristics can include:

• Permanent life insurance protection
• Cash-value accumulation potential
• Indexed-crediting strategies
• An applicable indexed-crediting floor
• Access to available policy values
• Potential retirement-income planning through withdrawals and policy loans
• Potential legacy value

But an IUL also has costs, insurance charges, policy rules, loan mechanics, underwriting requirements, and lapse risk.

That’s why “business owner + high income = buy an IUL” is terrible analysis.

Start With the Business Owner’s Actual Balance Sheet

Before talking about an IUL, I’d want to know where your wealth already sits.

For example:

That’s a $3.9 million example net asset picture before liabilities and other considerations.

Looks great.

But $2 million of it is tied to the company.

Another $800,000 is sitting in tax-deferred retirement accounts.

Now ask:

“Where does my spendable retirement income come from if the business doesn’t sell when I expect?”

That’s a better question.

An IUL Can Potentially Add Another Retirement Bucket

The word another matters.

We’re not automatically trying to replace everything else.

The business can have a job.

The qualified retirement plan can have a job.

Your taxable investments can have a job.

Cash can have a job.

An IUL can potentially have a job.

The retirement plan gets stronger when you know what each bucket is supposed to do.

When Might an IUL Be Worth Evaluating for a Business Owner?

There are several situations where I’d want to run the numbers.

1. You Have Strong Cash Flow but Most of Your Wealth Is Tied to the Business

Your income is good.

The company is profitable.

But most of your net worth keeps flowing back into the company.

You may want to start building an asset outside the business that serves a different purpose.

2. You’re Already Funding Other Retirement Accounts

Maybe you already contribute to a 401(k), Solo 401(k), SEP IRA, or another retirement arrangement.

The question isn’t necessarily:

“Should I stop?”

It may be:

“Do I want another retirement bucket with different tax and distribution characteristics?”

3. You’re Concerned About Having Too Much Future Retirement Income Tied to Tax-Deferred Accounts

Traditional qualified retirement accounts can provide valuable tax advantages during accumulation.

But Traditional 401(k) and Traditional IRA distributions are generally included in taxable income under current federal rules.

A business owner who accumulates substantial tax-deferred assets may want to model how future distributions interact with the rest of the retirement plan.

4. You Want Life Insurance Anyway

This matters.

An IUL is life insurance.

If there is no insurance need, don’t pretend that part of the product doesn’t exist.

A business owner may have legitimate reasons for permanent coverage involving family protection, legacy goals, estate planning considerations, business obligations, or other planning objectives.

Those needs should be evaluated on their own merits.

5. You Want Retirement Assets That Aren’t Completely Dependent on the Sale of the Company

This is one of the biggest reasons I’d consider running the comparison.

Your business may be a fantastic asset.

But retirement can become fragile when one asset has to do everything.

If the business has to:

Fund your retirement.

Provide your legacy.

Support your family.

And sell at the perfect price.

That’s a lot of pressure on one outcome.

The Business Itself Has Sequence Risk Too

Not market sequence risk in the traditional portfolio sense.

Business timing risk.

Imagine you’re 64 and planning to sell at 65.

Then:

A major customer leaves.

Your industry slows.

A competitor enters the market.

Interest rates hurt buyer financing.

A key employee quits.

Your revenue falls.

Suddenly the business you planned to sell next year may not command the valuation you expected.

That’s a retirement risk too.

The Question Becomes: How Many Things Have to Go Right?

This is one of my favorite retirement stress tests.

If the plan requires:

The business to sell at the target valuation.

The market to cooperate.

Tax rates to cooperate.

You to work until the exact planned retirement date.

And your health to cooperate.

That’s a lot of moving pieces.

Another retirement-income source can potentially create more flexibility.

But an IUL Is Not a Business Emergency Fund

This needs to be clear.

If your company needs working capital next month, an IUL designed for long-term retirement accumulation should not automatically be treated like a checking account.

Early policy values can be affected by policy design, charges, surrender provisions, and other factors.

The strategy needs time.

Don’t put money into a long-term policy that your business is likely to need back immediately.

Business Owners Need to Be Especially Honest About Cash Flow

Business income can be lumpy.

One year is fantastic.

The next year is mediocre.

Then you land a huge contract.

Then equipment breaks.

So don’t design a policy around the best year you’ve ever had.

Ask:

“Can I comfortably maintain the client-funded portion of this strategy during an average year?”

Then ask:

“What happens during a bad business year?”

The IUL JUMP Strategy Adds an Interesting Funding Mechanic

The accumulation design we’re discussing uses a Matching Indexed Participating Loan.

Let’s use the standard example.

The client contributes:

$10,000 per year.

The client funds Years 1 and 2 with $10,000 each.

Beginning in policy Year 3, Matching Indexed Participating Loan activity begins.

The matching amount is created as policy-loan activity.

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

The loan-funded value remains participating under the applicable indexed-crediting strategy in the example while the associated policy indebtedness carries the applicable loan cost.

Here’s the Standard JUMP Funding Example

This is where someone looks at Year 11 and asks:

“Wait. If I’m only putting in $10,000, where is the other $50,000 coming from?”

That’s exactly the question to ask.

The Additional $50,000 Is Not a Free Match

In this example, the client is still contributing $10,000 out of pocket.

The additional $50,000 comes from Matching Indexed Participating Loan-funded activity.

That means it creates policy indebtedness.

It’s not:

A free carrier contribution.

An employer match.

A tax credit.

Or free money.

The loan economics have to work.

Think of the Strategy as Two Buckets

Bucket 1: Client-funded policy value.

Bucket 2: Value associated with the Matching Indexed Participating Loan-funded amounts.

Under the example we’re discussing, both participate under the same applicable indexed-crediting strategy.

The loan-funded side also carries the applicable loan cost.

That’s where the retirement math gets interesting.

The Current Applicable Loan Rate Is 5%

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

5%.

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

6%.

The current 5% rate should not be treated as guaranteed to remain there.

For a business owner, I’d want to see the strategy modeled at both.

Why?

Because you’re making a long-term decision.

You may own this policy for decades.

If the strategy only looks attractive using the current 5% applicable loan rate, that’s not enough.

Show me 6%.

Then show me 6% during weaker indexed-crediting periods.

Positive Arbitrage Can Help the Model, but It Is Not Guaranteed

Suppose the applicable indexed-crediting result is:

8%.

And the applicable loan cost is:

5%.

The simplified economic relationship is:

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

That’s positive arbitrage in the simplified example.

But now flip it.

What Happens at 0% Crediting?

If the applicable indexed-crediting result is:

0%

and the applicable loan cost is:

5%,

the simplified relationship is:

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

That’s negative arbitrage.

It doesn’t mean the entire policy automatically loses 5%.

It describes the simplified economic relationship between the applicable indexed-crediting result and applicable loan cost.

A Business Owner Should Understand Both Before Signing Anything

Don’t show me only the favorable spread.

Show me the bad years.

Show me multiple 0% years.

Show me higher loan costs.

Show me policy charges.

Then show me what happens if my business has a rough year at the same time.

The Historical 6.87% Example Needs Context

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 capped at 10%.

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

6.87%.

That Is Not the Historical Return of the S&P 500

It’s also not a guaranteed future IUL crediting rate.

It is the historical average credited result from that specific capped-and-floored analysis of annual S&P 500 price changes, excluding dividends.

That distinction matters.

The Simplified Modeled Spread Was 1.87 Percentage Points

Using the current applicable 5% loan rate:

6.87% – 5.00% = 1.87 percentage points.

That is the simplified favorable spread used in that historical/modeling example.

It is not guaranteed.

And it does not represent the policy’s net return after every policy charge and other factor.

What About the Higher JUMP Modeling Figures?

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

For a Business Owner, I’d Ask a More Practical Question

“What does this potentially turn into as retirement income?”

Because your business doesn’t care that an illustration has an impressive percentage on it.

Your electric bill in retirement doesn’t care either.

You need spendable dollars.

What About the Approximately 12% Retirement-Income Model?

Under modeling used with the IUL JUMP Strategy, we’ve evaluated retirement distributions at approximately 12% per year of policy/account value under specific assumptions.

That’s a modeled distribution level.

It is not a universal safe withdrawal rate.

It is not guaranteed lifetime income.

And it needs to be stress-tested against the actual policy design, retirement age, loan mechanics, charges, crediting assumptions and longevity.

Business Owners Should Run the Retirement Projection Without Selling the Business

This is a powerful test.

Take the expected business-sale proceeds out of the model for a moment.

Then ask:

“What does my retirement look like?”

If everything collapses, you’ve learned something.

Your retirement may be too concentrated in one future transaction.

Then Add a Lower Business-Sale Price

If you expect the company to sell for $2 million, run:

$2 million.

$1.5 million.

$1 million.

Then run a delayed sale.

What if it takes three extra years?

What if you keep the business but distributions decline?

Those scenarios tell you how much work your other retirement assets may need to do.

What If You Never Sell?

Some business owners change their minds.

You build something for thirty years and discover that selling it feels a lot harder than you expected.

Maybe the kids take over.

Maybe management runs it.

Maybe you keep ownership.

That’s another reason retirement income outside the company can matter.

What If You Already Have a Solo 401(k) or SEP IRA?

Good.

An IUL doesn’t automatically make those accounts unnecessary.

They have their own contribution rules, tax treatment, investment characteristics, costs, and planning uses.

The better question is whether another retirement bucket improves the overall plan.

If you want the direct comparison, that’s a separate analysis.

Tax Diversification Can Matter to a Business Owner

You may spend your working years trying to reduce taxable business income.

Then retirement arrives and a large percentage of your retirement assets are tax-deferred.

Traditional IRA and Traditional 401(k) distributions are generally included in taxable income under current federal 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 and policy risks.

Those are different tax characteristics.

That can make the IUL worth modeling as part of a broader retirement-income plan.

But Don’t Call IUL Policy Loans “Tax-Free Income” and Stop There

Policy loans are loans.

They create indebtedness.

They can reduce policy values and death benefit.

They can increase lapse risk.

And if a policy lapses or is surrendered with gain and outstanding indebtedness, taxable income may result under applicable tax rules.

The tax treatment is part of the strategy.

It isn’t permission to ignore policy management.

Business Owners Also Need to Think About Underwriting

This is especially important with future JUMPs.

Each planned JUMP requires a new application and approval for the applicable death-benefit increase.

Qualification can be affected by:

• Health
• Income
• Employment and business circumstances
• Existing insurance
• Driving history
• Occupation
• Hazardous job duties
• Risky hobbies
• Other applicable underwriting factors

Financial Underwriting Can Matter More Than Business Owners Expect

You may have enough cash to fund the client portion of the strategy.

That does not automatically mean every requested future death-benefit increase will be approved.

The requested coverage needs to fit applicable underwriting requirements.

Income and financial justification can matter.

What If Business Income Falls Before the Next JUMP?

Run that scenario before you need it.

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

Prior successful JUMPs don’t automatically disappear solely because a later planned increase isn’t approved under the described mechanics.

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

But future JUMPs are not guaranteed.

So Run the Strategy With No Additional Future JUMPs

This is one of the most useful stress tests for a business owner.

What if your income falls?

What if your health changes?

What if your occupation changes?

What if the next JUMP isn’t approved?

Does the strategy still make sense?

That’s what I want to see.

Now Compare It With the Retirement Strategy You Already Have

This is where the Retirement Math Method™ becomes useful.

Don’t compare product labels.

Compare outcomes.

If you’re already putting money into a 401(k), IRA, SEP IRA, Solo 401(k), taxable account, or some combination, run the numbers side by side.

Use the same contribution assumptions where appropriate.

Use the same retirement age.

Use the same retirement horizon.

Use clearly stated tax assumptions.

Use realistic fees and charges.

Then compare projected spendable retirement income.

In Certain Modeled Comparisons, the Difference Has Been Significant

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 projected retirement income.

Not 300% more investment return.

Not guaranteed.

And not a statement that every business owner should replace a qualified retirement plan with an IUL.

Why Can the Modeled Income Be So Different?

Several things can contribute to the difference in a particular comparison:

• How contributions are structured
• Tax treatment of distributions
• Market and sequence assumptions
• Indexed-crediting assumptions
• Matching Indexed Participating Loan mechanics
• Applicable policy-loan costs
• Positive or negative loan arbitrage
• Policy charges
• Distribution timing
• Retirement duration

That’s why I don’t want someone to simply believe the 300% number.

I want them to understand where it came from.

Make the 300% Result Survive a Bad Business Scenario

This is how I’d test it for an owner.

Reduce business income.

Assume no future JUMPs.

Add weak indexed-crediting years.

Run the current applicable 5% loan rate.

Then run the contractual maximum 6% rate.

Move retirement earlier.

Live to 95.

Then compare the retirement-income results again.

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 is a modeled result.

It is not guaranteed.

The comparison needs the same contribution assumptions, retirement horizon, policy charges, crediting assumptions, loan assumptions, and distribution objectives.

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

If you’re a business owner and someone shows you up to approximately 300% more projected retirement income, your response should be:

“Show me exactly where the difference comes from.”

Then:

“Show me what happens when my business has a bad year.”

Then:

“Show me what happens if the next JUMP isn’t approved.”

Then:

“Show me what happens if the loan rate reaches 6%.”

That’s how a business owner should look at this.

When Might an IUL Be a Poor Fit for a Business Owner?

There are situations where the math can tell you to slow down.

If you need the money back soon.

If business cash flow is too unpredictable to comfortably support the planned client contribution.

If the strategy only works under aggressive assumptions.

If the insurance component doesn’t fit the planning need.

If the policy becomes fragile under reasonable stress tests.

If you don’t understand the loan mechanics.

If you’re relying on future JUMPs as though they’re guaranteed.

Those are reasons to examine the strategy more carefully before moving forward.

Don’t Fund the Policy With Money the Business Needs to Survive

This deserves emphasis.

Your retirement strategy shouldn’t create a working-capital problem.

If the company needs the $10,000 to make payroll next month, that’s a very different situation from having durable excess cash flow that can be committed to a long-term strategy.

A good retirement plan should not weaken the business that’s currently funding your life.

Here’s the Business-Owner Stress Test I’d Want to See

1. Start with the owner’s actual annual cash flow.
2. Separate business working capital from long-term retirement money.
3. List existing 401(k), IRA, SEP IRA, Solo 401(k), taxable and other assets.
4. Estimate how much of total net worth is tied to the business.
5. Run the planned IUL client contribution.
6. Run a lower-income business year.
7. Run no additional future JUMPs.
8. Run the current applicable 5% policy-loan rate.
9. Run the contractual maximum 6% rate.
10. Add multiple weak and 0% indexed-crediting periods.
11. Model the intended retirement-income amount.
12. Model a higher retirement-income need.
13. Move retirement earlier.
14. Reduce the assumed business-sale value.
15. Delay the assumed business sale.
16. Run a scenario where the business is never sold.
17. Compare projected net death benefit.
18. Extend the retirement projection through age 95 and beyond.

Then Ask: What Is the IUL Actually Fixing?

This question cuts through a lot of noise.

Is it helping you build wealth outside the business?

Is it creating another potential retirement-income source?

Is permanent life insurance part of the goal?

Is it helping diversify the tax characteristics of future retirement income?

Is it giving you another potential source of liquidity during retirement?

Or are you buying it because someone showed you a giant illustration?

Those are not the same reasons.

Business Owners Are Used to Taking Calculated Risks

You probably took a risk when you started the company.

You hired people before you knew exactly how much revenue they’d produce.

You invested in equipment.

You signed leases.

You made payroll when cash flow was tight.

Risk doesn’t scare you.

Unclear risk should.

You don’t need someone telling you an IUL is perfect.

You need someone to show you what can go wrong and what the numbers look like when it does.

There’s Also an Identity Problem Business Owners Rarely Talk About

You spent years becoming the person everyone calls when something goes wrong.

Your employees need answers.

Your customers need answers.

Your family assumes you’ll figure it out.

You’re the one who handles things.

Then retirement planning forces you to confront something uncomfortable:

One day, the business may not be the answer anymore.

And That Can Feel Like Giving Up Control

You may be thinking:

“I built this company. I know how to make money here.”

So putting money somewhere else can feel less productive.

But the purpose of every dollar isn’t maximum business growth.

Some dollars may need a different job.

Some may need to create options for the day you don’t want to work anymore.

The Late-Night Question Is Usually Simpler

“What happens if I can’t sell the business for what I think it’s worth?”

Then:

“What if I can’t work as long as I planned?”

Then:

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

And eventually:

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

“We should be able to handle this ourselves.”

That’s why retirement assets outside the business can mean more than diversification on a spreadsheet.

They can mean independence.

The Bottom Line

Does an IUL make sense for a business owner?

It can be worth evaluating when you have durable cash flow, a legitimate need for permanent life insurance, substantial wealth tied to the business, and a desire to build another potential source of retirement income outside the company and traditional tax-deferred accounts.

But don’t make the decision from income alone.

Don’t make it from one illustration.

And don’t make it because someone said “tax-free retirement.”

Look at the business.

Look at your existing retirement accounts.

Look at liquidity.

Look at taxes.

Look at policy charges.

Look at underwriting.

Look at the loan mechanics.

Then stress-test the whole thing.

The question isn’t:

“Can a business owner buy an IUL?”

Of course many can, subject to underwriting and suitability.

The question is:

“What job would the IUL do in my retirement plan that isn’t already being handled?”

How We Test an IUL for a Business Owner at FPP Financial

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

We start with what you’ve already built.

Your business.

Your qualified retirement accounts.

Your investments.

Your cash.

Your expected retirement date.

Your projected business exit.

Then we model the IUL.

We’ll look at the client-funded contribution.

We’ll look at Matching Indexed Participating Loan mechanics.

We’ll look at policy values.

We’ll look at outstanding policy indebtedness.

We’ll look at policy charges.

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

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

We’ll add weak and 0% indexed-crediting periods.

We’ll run no additional future JUMPs.

We’ll reduce the assumed business-sale value.

We’ll delay the business sale.

We’ll move retirement earlier.

Then we’ll extend the retirement-income projection through age 95 and beyond.

Because you didn’t build your company by believing somebody else’s sales pitch.

Your retirement strategy shouldn’t require that either.

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

Own a Business? Make Your Retirement Plan Work Without a Perfect Exit

If your company is a major part of your net worth, let’s see what happens when we stop assuming the business exit goes perfectly.

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, it has also produced approximately 40% more projected retirement income than the traditional IUL structure being compared.

Those are modeled results, not guarantees.

The results can change with contributions, taxes, business cash flow, retirement timing, indexed-crediting results, policy-loan mechanics, loan costs, policy charges, future JUMPs, distributions, and longevity.

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

• IUL JUMP Strategy vs. SEP IRA: Which Can Produce More Retirement Income for a Business Owner?
• IUL JUMP Strategy vs. Solo 401(k): Which Can Produce More Retirement Income for a Business Owner?
• How to Stress-Test an IUL Before You Use It for Retirement

Disclosure

This material is for educational purposes only and is not intended as individualized investment, securities, tax, legal, business, underwriting, retirement, 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, business investment, savings account, or direct investment in a market index.

Business owners should maintain appropriate business liquidity and working capital based on their individual circumstances. Funding a life insurance policy with money that may be needed for business operations can create financial risk. Business cash flow, profitability, liquidity, debt, ownership structure, retirement-plan availability, insurance needs, and other circumstances should be evaluated before committing funds to a long-term insurance strategy.

Business values and hypothetical sale proceeds discussed in this article are illustrative only. Actual business valuations, sale prices, sale timing, taxes, transaction costs, buyer financing, market conditions, and liquidity can differ materially from assumptions. Nothing in this article represents a business valuation or assurance that a company can be sold for a particular amount or at a particular time.

Projected retirement income from an indexed universal life policy is not guaranteed unless specifically identified as guaranteed under the applicable insurance contract. Nonguaranteed illustrated values can vary materially from actual policy results.

References to approximately 12% annual retirement distributions describe modeled distribution levels under specific assumptions. They should not be interpreted as universal safe withdrawal rates, guaranteed distribution rates, guaranteed lifetime income, or assurances that an indexed universal life policy can sustain those distribution levels for any particular period.

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, distributions, withdrawals, 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.

References to a 10% cap and 0% indexed-crediting floor describe the example strategy discussed in this article. Actual caps, participation rates, spreads, crediting methods, indexed strategies, and other nonguaranteed elements are governed by the applicable insurance contract and current declarations and may change where permitted by contract.

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 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.

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 actual 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. Prolonged unfavorable loan economics combined with policy charges and distributions can place additional pressure on policy values and long-term policy durability.

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, sustainable withdrawal 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 or business circumstances, existing insurance, driving history, occupation, hazardous job duties, risky hobbies, and other applicable underwriting factors may affect eligibility for additional coverage.

Financial underwriting may limit the amount of life insurance available based on applicable underwriting standards and the insured’s financial circumstances. Having sufficient cash available to fund premiums does not guarantee approval for a requested amount of insurance or a future death-benefit increase.

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 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.

Traditional 401(k), Solo 401(k), SEP IRA, and Traditional IRA arrangements have different eligibility requirements, contribution limits, deduction rules, tax treatment, distribution requirements, plan costs, investment characteristics, and other considerations. Life insurance should not be treated as legally or economically identical to a qualified retirement plan or IRA.

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, sustainable withdrawal rate, guaranteed lifetime income, or S&P 500 performance. Contributions, taxes, business cash flow, retirement timing, market assumptions, indexed-crediting results, policy-loan mechanics, loan rates, policy charges, future JUMPs, distributions, longevity, and other assumptions can materially alter the comparison.

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

Comparisons between an IUL and other retirement strategies should use clearly stated and internally consistent assumptions, including contributions, retirement age, taxes, fees and charges, investment or crediting assumptions, distribution amounts, distribution timing, policy-loan mechanics, longevity, death-benefit objectives, and applicable business circumstances.

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, maturity provisions, and distribution mechanics should be verified against current approved illustrations and the actual insurance contract.

FPP Financial does not provide tax, legal, accounting, business-valuation, or business-sale advice. Business owners should consult qualified tax, legal, accounting, insurance, financial, and business professionals regarding their individual circumstances before purchasing or modifying life insurance, changing retirement-plan contributions, taking policy loans, accessing policy values, selling or transferring a business, or implementing any retirement-income strategy discussed here.