IUL for Real Estate Investors: Does It Make Sense for Retirement Income?

You own six rental properties.

Maybe twelve.

Maybe twenty.

Your balance sheet says you’re worth several million dollars.

Then you look at how much of that money is actually sitting somewhere you can access without selling a building, refinancing a property, or disrupting an investment.

That’s when the picture can look very different.

Real estate can build substantial wealth.

But a real estate investor can also become asset rich and liquidity poor.

That creates an interesting retirement question:

“Do I want nearly all of my retirement income coming from properties?”

If the answer is no, indexed universal life may be worth evaluating as another potential bucket.

Not as a replacement for real estate.

Not because IUL is automatically better than owning rental property.

And definitely not because somebody showed you a huge illustration.

The question is whether the policy adds something your real estate portfolio doesn’t already give you.

Real Estate Investors Don’t Have the Same Retirement Problem as Everyone Else

A traditional employee may think about retirement primarily through a 401(k), IRA and Social Security.

A real estate investor may have a completely different balance sheet.

You could have:

• $2 million of property equity
• $1.5 million of mortgage debt
• Several rental-income streams
• A relatively modest 401(k) or IRA
• Cash reserves spread across multiple properties
• Future property-sale opportunities

Your net worth may be strong.

But your retirement-income plan may be heavily concentrated in one asset class.

“My Rentals Are My Retirement” Can Work

Plenty of investors intentionally build rental portfolios for exactly that reason.

The properties can potentially produce income while also providing ownership of appreciating assets.

But rental income isn’t the same thing as guaranteed retirement income.

Properties have expenses.

Vacancies happen.

Roofs fail.

HVAC systems die.

Insurance costs change.

Property taxes change.

Tenants stop paying.

Property managers charge fees.

Debt service continues.

None of that makes real estate a bad investment.

It means gross rent and spendable retirement income are different numbers.

The Same Is True of Property Equity

Suppose you have:

$2,000,000 of equity across your real estate portfolio.

That’s valuable.

But you can’t buy groceries with an appraisal.

To turn equity into spendable money, you generally need another transaction.

You might sell.

Refinance.

Borrow against a property.

Restructure the portfolio.

Or live from the net rental cash flow while preserving the properties.

That’s Where Another Retirement Bucket Can Become Interesting

What if part of your retirement income didn’t require a tenant?

Didn’t require selling a property?

Didn’t require refinancing?

Didn’t require liquidating your best asset because you happened to need money that year?

That’s the potential role worth testing.

But Don’t Turn This Into “IUL vs. Real Estate”

That’s the wrong comparison for this article.

Real estate and life insurance do different jobs.

A rental property can provide rental income, appreciation potential, leverage and property ownership.

An IUL is permanent life insurance with cash-value accumulation potential and policy-loan provisions.

They’re not substitutes simply because both can appear on a retirement balance sheet.

A more useful question is:

“Could these two assets do different jobs inside the same retirement plan?”

Consider a Real Estate Investor at Age 50

Let’s use a hypothetical example.

He’s 50.

He owns eight rental properties.

The properties are worth $3 million combined.

He has $1.4 million of associated debt.

That leaves approximately $1.6 million of gross property equity before selling costs, taxes and other considerations.

He also has $650,000 in retirement accounts.

His rentals generate positive cash flow.

He wants to retire at 62.

On paper, he looks great.

But now ask a different question:

“Where will his retirement spending money actually come from every month?”

Maybe the Rentals Cover Everything

If they do, great.

Then an IUL needs to prove why it deserves any of his money.

Maybe it doesn’t.

But perhaps he wants:

• Another potential source of retirement income
• Permanent life insurance
• A legacy component
• Less dependence on rental cash flow
• More flexibility around when properties are sold
• A bucket with different tax characteristics from his Traditional retirement accounts

Now there’s something to analyze.

The IUL Needs a Job

I wouldn’t start by asking:

“How much IUL can this investor afford?”

I’d start with:

“What problem are we asking this policy to solve?”

If we can’t answer that clearly, we shouldn’t be talking about an illustration yet.

What Can an IUL Potentially Add?

Indexed universal life is permanent life insurance.

Subject to policy design and contract provisions, it can potentially provide:

• Permanent death-benefit protection
• Cash-value accumulation potential
• Indexed-crediting strategies
• An applicable indexed-crediting floor
• Access to available policy values
• Policy-loan provisions
• Potential retirement-income planning
• Potential legacy value

It also comes with costs.

Cost of insurance.

Administrative charges.

Loan costs.

Underwriting.

Contractual restrictions.

And nonguaranteed elements.

Real Estate Investors Should Understand Policy Loans Quickly

You already understand leverage.

That’s useful.

But don’t assume a policy loan works exactly like a mortgage, HELOC, DSCR loan, or line of credit.

It doesn’t.

Policy loans are governed by the life insurance contract.

They create policy indebtedness and generally carry applicable loan charges.

Outstanding indebtedness can affect policy values and net death benefit and can increase lapse risk.

That Makes the IUL JUMP Strategy Particularly Interesting to Analyze

The strategy uses a Matching Indexed Participating Loan during accumulation.

Let’s use the standard $10,000 annual client-contribution example.

The First Two Years

The client contributes:

$10,000 in Year 1.

Then:

$10,000 in Year 2.

Under the example, Matching Indexed Participating Loan activity begins in Year 3.

Here’s the JUMP Funding Pattern

Year 11 Is Where People Usually Stop and Ask a Question

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

Good question.

It’s not free money.

The client isn’t writing a $60,000 check.

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

That means policy indebtedness is being created.

A Real Estate Investor Should Immediately Understand Why That Matters

Leverage can change the economics of an asset.

It can magnify an opportunity.

It can also introduce another cost and another risk.

The fact that borrowed money exists doesn’t make a strategy good or bad.

You have to look at what the borrowed money is doing and what it costs.

That’s the Important Part of the JUMP Structure

Under the strategy being modeled, the Matching Indexed Participating Loan 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.

The associated policy indebtedness carries the applicable loan cost.

Think About Two Buckets

Bucket 1: Value associated with the client’s own annual contributions.

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

Under the example, both participate under the same applicable indexed-crediting strategy with a potential 10% cap and 0% indexed-crediting floor.

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

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%.

That means I don’t want to see a long-term retirement projection tested only at 5%.

Show me 6% too.

Positive Arbitrage Will Sound Familiar to a Real Estate Investor

At a conceptual level, you understand the idea of borrowing at one cost while an asset is expected to produce an economic result greater than that cost.

In a simplified IUL example, suppose applicable indexed crediting is:

8%.

And the applicable loan cost is:

5%.

The simplified difference is:

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

That’s positive arbitrage in the simplified example.

But Real Estate Investors Also Know Leverage Doesn’t Always Cooperate

Now suppose applicable indexed crediting is:

0%.

And the applicable loan cost is still:

5%.

The simplified relationship becomes:

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

That’s negative arbitrage.

The loan cost doesn’t disappear because the indexed-crediting result was 0%.

Never Confuse a 0% Floor With “No Loss”

The applicable indexed-crediting floor in the example means a negative index period does not create a negative indexed-crediting rate solely from that index movement, subject to actual contract terms.

It does not mean:

No policy charges.

No insurance costs.

No loan costs.

No decline in policy value.

No lapse risk.

That’s a crucial distinction.

Where Does the 6.87% Historical Example Come From?

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:

A 10% cap

and:

A 0% indexed-crediting floor.

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

Positive annual changes above 10% were capped at 10%.

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

6.87%.

Don’t Call 6.87% an S&P 500 Return

It isn’t.

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

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

The Historical/Modeling Spread

Using the current 5% applicable loan rate:

6.87% – 5.00% = 1.87 percentage points.

That 1.87-percentage-point favorable difference is the simplified positive-arbitrage relationship used in that historical/modeling example.

It isn’t guaranteed.

How the Successive JUMPs Affect the Model

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 aren’t S&P 500 returns.

They’re not indexed-crediting rates.

They’re not guaranteed policy returns.

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

So Why Would a Real Estate Investor Care?

Not because 17.35% looks exciting.

The question is what the complete policy can potentially produce as retirement income after accounting for its moving parts.

That’s what needs to be compared with the investor’s existing retirement-income plan.

Your Rental Properties Already Produce Income

So use real numbers.

Maybe your properties generate:

$180,000 a year in gross rent.

But after vacancies, management, maintenance, taxes, insurance, debt service and reserves, your actual spendable cash flow may be much lower.

Use the net number.

Then model the IUL income separately.

Don’t Double Count Your Real Estate

This is a common planning mistake.

You can’t assume you’re going to keep a rental forever for the income and also count the full sale proceeds from that same property as though you’ve already sold it.

Choose the scenario.

Keep it.

Sell it.

Refinance it.

Then run the math accordingly.

Maybe the IUL Gives You More Control Over When You Sell

Imagine you’re 67.

You want $100,000 for a major expense.

You don’t necessarily want to sell a rental that year.

Maybe the property is performing well.

Maybe the market isn’t attractive.

Maybe you don’t want to create a taxable transaction without first coordinating with your tax professional.

Having another source of available funds could give you another option.

That flexibility can have value even when the real estate remains the largest part of your net worth.

But Policy Liquidity Isn’t the Same as Cash in a Bank

Available policy value is governed by the insurance contract.

Accessing it can affect policy values, policy indebtedness, death benefit and long-term policy durability.

So don’t describe an IUL as a checking account with better returns.

It isn’t.

What About Taxes?

Real estate investors already live in a complicated tax world.

Rental income.

Depreciation.

Property sales.

Capital gains.

Potential depreciation recapture.

Entity structures.

Qualified retirement accounts.

Potential estate considerations.

Life insurance adds another set of rules.

Policy Loans Can Have Different Tax Treatment From IRA Withdrawals

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 risks.

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

Those different characteristics can matter when modeling spendable retirement income.

But Don’t Call Policy Loans “Free Tax-Free Money”

A policy loan is still a loan.

It creates policy indebtedness.

Loan charges apply.

Outstanding loans generally reduce the net death benefit.

And a policy lapse or surrender with gain and outstanding indebtedness can potentially create taxable income.

That’s why the tax treatment and policy durability have to be evaluated together.

What About the Approximately 12% Retirement Distribution 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 isn’t a universal safe withdrawal rate.

It isn’t guaranteed lifetime income.

It needs to survive the policy’s actual loan costs, charges, crediting results, distributions and longevity.

Now We Get to the Up-to-300% Retirement-Income 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.

For a real estate investor, that number should trigger questions.

Not excitement.

300% More Projected Retirement Income Is Not 300% More Return

It does not mean the IUL earns 300% more.

It does not mean your cash value will be 300% larger.

It does not mean the S&P 500 somehow produces 300% more inside an IUL.

And it does not mean every real estate investor will receive 300% more retirement income.

The figure refers to certain modeled retirement-income comparisons under specific assumptions.

And We Are Not Claiming 300% More Than Real Estate

This matters.

The up-to-approximately-300% figure refers to certain modeled comparisons against the 401(k), Traditional IRA, or comparable tax-deferred retirement strategy being evaluated.

It should not be applied to a rental property, real estate portfolio or property-development strategy without an actual apples-to-apples analysis supporting that comparison.

Where Can the Modeled Difference Come From?

The projected retirement-income difference can be affected by:

• Contributions
• Taxes
• Retirement age
• Distribution structure
• Market assumptions
• Indexed-crediting assumptions
• Policy charges
• Matching Indexed Participating Loan mechanics
• Applicable policy-loan costs
• Positive and negative arbitrage
• Future JUMP approvals
• Retirement duration
• Longevity

Change the assumptions and the result can change.

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

If I show you up to approximately 300% more projected retirement income, ask:

“Show me exactly where the difference comes from.”

Then change the assumptions.

Run the Loan Rate at 6%

Run multiple 0% indexed-crediting periods.

Run weaker long-term crediting.

Run higher policy charges where appropriate.

Run no additional future JUMPs.

Run retirement five years early.

Run the policy through age 95.

That’s how you find out whether the projected advantage has any durability.

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.

That isn’t guaranteed either.

The reason two IUL strategies can produce different modeled retirement-income results can include funding design, policy charges, loan provisions, loan costs, indexed-crediting assumptions, distribution patterns and other policy mechanics.

Owning an IUL isn’t the strategy.

The design matters.

A Real Estate Investor Should Understand Future JUMP Underwriting Too

The standard example shows planned JUMPs in policy Years:

3, 5, 7, 9 and 11.

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

Future JUMPs are not guaranteed when the original policy is issued.

What Can Affect Approval?

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

Real Estate Wealth Doesn’t Automatically Equal Insurance Capacity

You may own millions of dollars of property.

That doesn’t automatically mean every requested amount of life insurance will be approved.

Financial underwriting matters.

Income, net worth, existing coverage, purpose of coverage and other applicable factors can affect the amount of insurance available.

What If You Don’t Qualify for Another JUMP?

Under the strategy 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.

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

But I still want to see the retirement model with:

No additional future JUMPs.

Real Estate Investors Need One More Stress Test

Run the policy and the real estate portfolio through the same bad period.

Imagine:

Rental income falls.

A couple of properties need major repairs.

Property values soften.

Refinancing becomes less attractive.

And the IUL experiences weak indexed-crediting periods.

Now what?

That’s the scenario that tells you whether you really created diversification or simply built two strategies that both need favorable conditions at the same time.

Don’t Use Your Property Emergency Fund to Fund an IUL

This should be obvious, but it’s worth saying.

If the roof needs replacing, the insurance deductible is due, or you have three vacant units, you don’t want your emergency liquidity committed to a long-term life insurance strategy.

Keep appropriate property reserves.

Keep personal liquidity.

Then evaluate what truly qualifies as long-term money.

What If You Plan to Sell Properties in Retirement?

Model that.

Maybe you sell one property every two years.

Maybe you liquidate half the portfolio at retirement.

Maybe you keep everything and live on net rent.

Maybe you want your children to inherit the properties.

Those are four different retirement plans.

The IUL should be evaluated inside the plan you actually intend to use.

What If You Want to Keep the Properties for Your Kids?

Now the legacy conversation becomes more important.

If your retirement income requires you to sell the properties you wanted to leave behind, there’s a conflict between your retirement-income goal and your legacy goal.

Another retirement-income source may potentially reduce some of that pressure.

But again, run the numbers.

The Death Benefit Can Matter Too

Real estate investors can have substantial assets and substantial liabilities at the same time.

Permanent life insurance may have a legitimate role in estate liquidity, family protection, debt planning or legacy objectives in some situations.

Those needs should be analyzed separately from the retirement-income illustration.

Don’t manufacture an insurance need just to justify an accumulation strategy.

Here’s the Real Estate Investor Stress Test I’d Want to See

1. List every property.
2. List current market value estimates.
3. List debt on each property.
4. Calculate approximate equity separately from liquidity.
5. Calculate gross rental income.
6. Calculate realistic net rental cash flow after expenses and reserves.
7. Identify property emergency reserves.
8. List retirement accounts.
9. Separate Traditional and Roth balances.
10. List taxable investments and cash.
11. Identify the actual permanent life insurance need.
12. Model the proposed IUL contribution.
13. Model the Matching Indexed Participating Loan mechanics.
14. Run the current applicable 5% loan rate.
15. Run the contractual maximum 6% loan rate.
16. Add weak and 0% indexed-crediting periods.
17. Run no additional future JUMPs.
18. Reduce rental income.
19. Add major property expenses.
20. Delay planned property sales.
21. Move retirement earlier.
22. Increase retirement spending.
23. Extend the policy through age 95 and beyond.
24. Compare outstanding policy indebtedness.
25. Compare projected net death benefit.
26. Compare projected spendable retirement income across the strategies being evaluated.

Then Ask the Question That Actually Matters

“Did the IUL give me something useful that my real estate portfolio wasn’t already giving me?”

If the answer shown by the math is no, that’s useful information.

If the answer shown by the math is yes, now you can identify exactly what that benefit is.

For Some Investors, the Real Benefit May Be Optionality

You don’t necessarily need to sell a property because you need cash that year.

You don’t necessarily need every dollar of retirement spending to come from rent.

You may have another potential source of available funds.

That can give you choices.

And choices become more valuable when you’re older.

Because Retirement Changes the Way Risk Feels

At 40, a bad investment year may feel like something you can work through.

At 75, you may not want to rebuild anything.

You spent decades creating independence.

The last thing you want is to discover that your retirement plan requires perfect timing.

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

“We should be able to handle this ourselves.”

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

That’s why the goal isn’t to find the asset with the prettiest projection.

The goal is to build a retirement system you understand.

When Can an IUL Be Worth Evaluating for a Real Estate Investor?

It may deserve a serious comparison when:

• You have durable cash flow beyond property and personal reserves
• You have a legitimate permanent life insurance objective
• You want another potential retirement-income source outside real estate
• A large portion of your net worth is tied to illiquid property equity
• You want flexibility around when properties are sold
• You have substantial tax-deferred retirement assets in addition to real estate
• You understand that policy loans create indebtedness
• You understand that future JUMPs require future underwriting
• You are willing to stress-test the policy
• The modeled improvement is meaningful enough to justify the policy’s costs and complexity

When Should You Slow Down?

If the premium is coming from property reserves.

If your cash flow is inconsistent.

If you’re highly leveraged and short on liquidity.

If you expect to need the policy funding back quickly.

If there isn’t a reasonable permanent insurance objective.

If positive arbitrage is being presented as guaranteed.

If future JUMPs are being presented as guaranteed.

If nobody will show you the maximum 6% applicable loan rate.

If nobody will show you bad crediting years.

If nobody will show you what happens if the next JUMP never happens.

If nobody will extend the projection through age 95.

Those are signs you need a better analysis.

The Bottom Line

Does an IUL make sense for a real estate investor?

It can be worth evaluating when it has a specific job inside the retirement plan.

Maybe that job is creating another potential source of retirement income.

Maybe it’s providing permanent life insurance.

Maybe it’s giving you more flexibility around when properties are sold.

Maybe it’s adding a bucket with different characteristics from your rental properties and Traditional retirement accounts.

But the IUL doesn’t get a free pass simply because you’ve built wealth.

Make it compete.

Make it survive bad assumptions.

Make it show you the policy indebtedness.

Make it show you the charges.

Make it show you what happens at 6% loan cost.

Make it show you what happens at age 95.

Then let the math do the talking.

How We Test an IUL for a Real Estate Investor at FPP Financial

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

We start with the assets you already own.

Your properties.

Your equity.

Your debt.

Your realistic net rental cash flow.

Your retirement accounts.

Your taxable investments.

Your cash reserves.

Your expected retirement age.

Your retirement-income target.

Your property-sale plans.

Your legacy goals.

Then we model the IUL strategy.

We look at the client-funded dollars.

We look at the Matching Indexed Participating Loan mechanics.

We look at policy values.

We look at policy charges.

We look at outstanding policy indebtedness.

We run the current applicable 5% loan rate.

We stress-test the contractual maximum 6% rate.

We add weak and 0% indexed-crediting periods.

We run no additional future JUMPs.

We reduce rental cash flow.

We delay property sales.

We move retirement earlier.

We extend the projection through age 95 and beyond.

Then we compare projected spendable retirement income using clearly stated assumptions.

We don’t sell you a retirement strategy. We run the math and let you decide.

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

Want to See Whether an IUL Adds Anything to Your Real Estate Retirement Plan?

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.

They can change materially with contributions, taxes, retirement timing, indexed-crediting results, policy charges, policy-loan mechanics, loan rates, future JUMPs, distributions and longevity.

And the up-to-300% figure should not be interpreted as a claim that the JUMP Strategy produces 300% more income or return than real estate.

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 for Business Owners: When Does It Make Sense for Retirement?
• Why Does Redeploying an IUL Policy Loan Change the Retirement Math?
• 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, accounting, real estate, retirement, underwriting, or insurance advice. Indexed universal life insurance is permanent life insurance and is not real estate, a qualified retirement plan, IRA, brokerage account, mutual fund, index fund, savings account, or direct investment in a market index.

References to property values, equity, debt, rental income, retirement balances, contribution amounts, retirement ages, and retirement-income needs are hypothetical examples only. They do not establish suitability, insurance need, underwriting eligibility, appropriate funding, property value, expected investment performance, policy performance, or retirement-income results for any individual.

Real estate investments involve risks that can include changes in property values, vacancies, tenant defaults, financing costs, interest rates, insurance expenses, taxes, maintenance, capital expenditures, legal costs, management expenses, liquidity constraints, transaction costs, and other factors. Real estate income, appreciation, sale proceeds, and refinancing availability are not guaranteed.

Real estate tax treatment can involve rental income, depreciation, capital gains, depreciation recapture, basis adjustments, entity considerations, passive-activity rules, property exchanges, estate planning, and other issues. This article does not provide tax advice or assume a specific tax result from holding, selling, refinancing, transferring, or inheriting real estate.

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. Real estate holdings, property equity, or net worth do not by themselves guarantee approval for a requested amount of insurance or 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.

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, S&P 500 performance, rental income, real estate return, property appreciation, or real estate investment performance. Contributions, taxes, 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 involving an IUL, real estate, retirement accounts, and other investments should use clearly stated assumptions and recognize that the assets have materially different purposes, risks, liquidity characteristics, tax treatment, costs, leverage, income characteristics, and legal structures. A simplified return comparison alone is not an adequate suitability analysis.

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, investment, securities, real estate, property-valuation, lending, or property-management advice. Real estate investors should consult qualified tax, legal, accounting, insurance, financial, real estate, lending, and other appropriate professionals regarding their individual circumstances before purchasing or modifying life insurance, selling or refinancing property, taking policy loans, accessing policy values, changing investment allocations, or implementing any retirement-income strategy discussed here.