IUL for Self-Employed People: Is It Worth Considering for Retirement?

When you’re self-employed, nobody is coming to your desk with a retirement-plan enrollment packet.

There may be no employer match.

No benefits department reminding you to increase your contribution.

No pension quietly building in the background.

No company automatically putting retirement planning on your calendar.

You built the income.

You pay the taxes.

You manage the cash flow.

And you have to build the retirement system too.

That’s why self-employed retirement planning can look very different from planning for someone who has spent 30 years working for a large company.

An indexed universal life policy can potentially become one piece of that system.

But only if it solves a real problem.

Being self-employed doesn’t automatically make you a good IUL candidate.

And having one great income year definitely doesn’t mean you should commit to a long-term policy based on that year.

The better question is:

“Does an IUL give my retirement plan something useful that I don’t already have?”

The Self-Employed Retirement Problem Is Different

Imagine you’re 48.

You run a consulting business.

One year you make $180,000.

The next year you make $260,000.

Then a major client leaves and you make $145,000.

Then you have a record year.

That’s normal for a lot of self-employed people.

Your income isn’t necessarily bad.

It’s uneven.

That matters when you’re building a retirement strategy that may need to stay in place for decades.

You Have to Think About Two Financial Lives at the Same Time

There’s your business life.

And your personal life.

The business may need cash for:

• Payroll
• Contractors
• Equipment
• Advertising
• Software
• Taxes
• Inventory
• Insurance
• Debt payments
• Unexpected expenses

Then your household needs its own emergency reserves.

Only after those needs are understood can you get serious about what money is truly available for long-term retirement planning.

That’s Why “I Can Afford $20,000 This Year” Isn’t Enough

I want to know whether you can reasonably support the strategy when business is slower.

What happens when your biggest client leaves?

What happens when revenue drops 25%?

What happens when you need $40,000 unexpectedly for the business?

What happens when taxes come in higher than expected?

A retirement strategy that only works during your best years isn’t much of a retirement strategy.

Self-Employed Doesn’t Mean You Have No Retirement-Plan Options

This is where IUL conversations sometimes go wrong.

Someone hears:

“You’re self-employed.”

And immediately jumps to:

“You need an IUL.”

No.

A self-employed person may have access to retirement-plan options such as a SEP IRA, Solo 401(k), IRA, Roth account, or other arrangements based on the person’s business structure, income, employees, eligibility, and applicable tax rules.

Those should be evaluated.

An IUL Doesn’t Replace Those Rules

An IUL is life insurance.

It isn’t a SEP IRA.

It isn’t a Solo 401(k).

It isn’t an IRA.

It isn’t a brokerage account.

It has its own costs, tax characteristics, insurance requirements, underwriting, liquidity characteristics and policy mechanics.

So don’t force unlike things into a fake either-or decision.

The Better Question Is Where the Next Long-Term Dollar Should Go

Maybe you’re already making substantial retirement-plan contributions.

Maybe you’re building a taxable investment account.

Maybe you’re reinvesting heavily into your business.

Maybe you’re buying real estate.

Maybe you’re holding more cash because your income fluctuates.

And maybe permanent life insurance deserves a place too.

Now we have a real comparison.

What Could an IUL Potentially Add?

Indexed universal life is permanent life insurance with cash-value accumulation potential.

Subject to actual 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 has costs.

Insurance isn’t free.

There can be cost of insurance, administrative expenses, policy charges and loan costs.

That’s why the policy needs to prove that what it adds is worth what it costs.

For a Self-Employed Person, One Potential Benefit Is Another Retirement Bucket

Maybe your retirement eventually consists of:

Bucket 1: SEP IRA or Solo 401(k).

Bucket 2: Roth assets.

Bucket 3: Taxable investments.

Bucket 4: Business value.

Bucket 5: Real estate.

Bucket 6: A properly structured permanent life insurance policy.

You don’t need every bucket.

The point is that different assets can do different jobs.

Tax Treatment Can Be One of Those Differences

Traditional tax-deferred retirement accounts generally create taxable income when distributions are taken 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 risks.

That’s a meaningful difference.

But it needs the rest of the sentence.

Don’t Shorten It to “IUL Income Is Tax-Free”

Policy loans are loans.

They create policy indebtedness.

Applicable loan charges generally accrue.

Outstanding indebtedness can reduce policy values and net death benefit.

Large loans can increase lapse risk.

And a policy that lapses or is surrendered with gain and outstanding indebtedness can potentially create taxable income.

Tax treatment and policy durability have to be analyzed together.

Now Add the IUL JUMP Strategy

The strategy we’re evaluating uses a Matching Indexed Participating Loan during accumulation.

Let’s use the standard example where the client contributes:

$10,000 per year.

The First Two Years Are Simple

Year 1:

$10,000 from the client.

Year 2:

$10,000 from the client.

Starting in policy Year 3, Matching Indexed Participating Loan activity begins under the example.

Here’s the JUMP Funding Pattern

Stop at Year 11

The client is contributing:

$10,000 out of pocket.

Yet the example shows:

$60,000 of total annual funding.

So where did the other $50,000 come from?

It Came From Policy Loans

The additional amount shown is created through Matching Indexed Participating Loan activity.

It isn’t a free carrier contribution.

It isn’t an employer match.

It isn’t a tax credit.

It creates policy indebtedness.

That distinction needs to be crystal clear.

What Happens to the Loan Proceeds?

Under the JUMP strategy being modeled, 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.

The associated policy indebtedness carries the applicable loan cost.

Think of the Policy as Two Buckets

Bucket 1: Value associated with the client’s own 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 policy-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 a long-term projection should not be tested only at today’s 5% applicable rate.

I want to see 6% too.

Why?

Because this may be a 30-year, 40-year or longer financial relationship.

A strategy shouldn’t require today’s exact conditions forever to look reasonable.

Positive Arbitrage Is Part of the JUMP Math

Here’s a simplified example.

Suppose applicable indexed crediting for a period is:

8%.

And the applicable loan cost is:

5%.

The simplified economic difference is:

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

That’s positive arbitrage in the simplified example.

Now Run the Bad Version

Suppose applicable indexed crediting is:

0%.

And the applicable loan cost remains:

5%.

Now the simplified relationship is:

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

That’s negative arbitrage.

Positive arbitrage is not guaranteed.

The 0% Floor Doesn’t Mean Your Policy Can’t Lose Value

The applicable 0% indexed-crediting floor in the example applies to the indexed-crediting calculation.

It doesn’t eliminate:

• Cost of insurance
• Administrative expenses
• Other policy charges
• Loan costs
• Withdrawals
• Retirement distributions

So a 0% indexed-crediting year can still put pressure on overall policy values.

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 index-price changes were replaced by 0% for purposes of 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%.

Be Careful With That Number

6.87% isn’t the historical total return of the S&P 500.

It isn’t a guaranteed future IUL rate.

It isn’t a guaranteed policy return.

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

Now Compare 6.87% With the Current 5% Loan Cost

The simplified modeled relationship is:

6.87% – 5.00% = 1.87 percentage points.

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

It isn’t guaranteed to repeat.

What Happens as Successive JUMPs Are Added to 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 are not indexed-crediting rates.

They’re not S&P 500 returns.

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.

The Real Question Is What This Can Potentially Produce as Retirement Income

That’s where the analysis should eventually land.

You don’t retire on a projected percentage.

You retire on spendable dollars.

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 is a modeled distribution level.

It is not a universal safe withdrawal rate.

It is not guaranteed lifetime income.

The policy has to demonstrate that the modeled distribution can remain supportable under the assumptions being tested.

Now Compare That With the Self-Employed Person’s Other Retirement Assets

This is where the Retirement Math Method™ becomes useful.

Don’t just ask:

“How much will the IUL have at age 65?”

Ask:

“How much projected spendable retirement income does each strategy produce?”

That Includes Your SEP IRA or Solo 401(k)

If you have $1.5 million in a Traditional SEP IRA at retirement, that’s a real asset.

But future distributions generally create taxable income under current federal rules.

If you have an IUL with available policy values, the potential access mechanics are different.

That doesn’t make one universally better.

It means the retirement-income comparison should account for the differences.

This Is Where the Up-to-300% Comparison Comes In

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.

If you’re self-employed and using a tax-deferred retirement strategy, that’s a number worth investigating.

But don’t just believe it.

300% More Projected Retirement Income Does Not Mean 300% More Return

It does not mean:

The IUL earns 300% more.

The S&P 500 produces 300% more.

Your cash value will automatically be 300% larger.

Or every self-employed person will receive 300% more retirement income.

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

Where Can the Difference Come From?

The modeled retirement-income difference can be affected by:

• Annual contributions
• Taxes
• Retirement age
• Distribution structure
• Market assumptions
• Indexed-crediting assumptions
• Policy charges
• Matching Indexed Participating Loan mechanics
• Policy-loan costs
• Positive or negative arbitrage
• Future JUMP approvals
• Retirement duration
• Longevity

Change those assumptions and you can change the result.

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

If a comparison shows up to approximately 300% more projected retirement income, ask:

“Show me exactly where the difference comes from.”

Then start breaking the projection.

Run the Self-Employed Stress Test

What happens if your income drops 30% for two years?

What happens if you need more business cash?

What happens if you retire five years early?

What happens if indexed crediting is weaker?

What happens with several 0% indexed-crediting periods?

What happens with the applicable loan rate at the contractual maximum of 6%?

What happens if no additional JUMPs are approved?

What happens if you live to 95?

That’s the version I want to see.

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 guaranteed.

The result can be affected by policy design, funding, charges, loan provisions, indexed-crediting assumptions, retirement distributions, loan costs, future JUMPs and longevity.

The lesson isn’t:

“Every JUMP strategy beats every traditional IUL by 40%.”

The lesson is:

“Two IUL designs can produce very different modeled retirement-income results.”

Future JUMPs Require Future Underwriting

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 aren’t guaranteed when the original policy is issued.

For a Self-Employed Person, Financial Underwriting Can Matter a Lot

Future approval can be affected by factors that include:

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

Your income may look different three years from now.

Your business may look different.

Your health may look different.

That’s why future JUMPs should never be treated as automatic.

What If You Don’t Qualify for the Next 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 the plan should still be tested with:

No additional future JUMPs.

That’s Especially Important When You’re Self-Employed

You don’t want a retirement strategy built around the assumption that your business income, health and underwriting profile will remain perfect for the next decade.

Build the good case.

Then build the ugly case.

Look at both.

Don’t Fund a Long-Term Policy With Short-Term Business Money

This may be the most important point in this entire article for someone who’s self-employed.

Your checking-account balance isn’t necessarily available retirement money.

Some of it may belong to:

The IRS.

Payroll.

Vendors.

Future business expenses.

Your emergency reserve.

Don’t confuse cash passing through the business with durable excess cash flow.

And Don’t Build the Policy Around Your Best Income Year

Suppose you normally make around $200,000.

Then you have one year where you make $400,000.

That may create an opportunity to save more.

It doesn’t automatically mean you should create a long-term commitment as though $400,000 is your new normal.

Ask what the funding looks like in an average year.

Then ask what it looks like in a bad year.

What If Your Income Is Extremely Variable?

Then flexibility becomes even more important.

Maybe you’re a consultant.

Real estate agent.

Independent salesperson.

Contractor.

Freelancer.

Creator.

Owner-operator.

Your income may move dramatically from year to year.

The policy design needs to be evaluated with that reality in mind.

What If Your Business Is Also Your Biggest Retirement Asset?

That’s another concentration issue.

You may tell yourself:

“I’ll just sell the business when I’m ready to retire.”

Maybe you will.

But what’s it worth?

Who will buy it?

How long will the sale take?

Will you need to stay involved?

How much will you actually keep after taxes, transaction costs and other obligations?

Don’t treat an estimated business value like cash already sitting in your retirement account.

Another Retirement Bucket Can Potentially Reduce That Pressure

If you have other sources of retirement income, you may have more flexibility around when the business is sold.

You may not have to accept the first offer simply because you need retirement cash.

You may be able to transition more gradually.

That’s an economic benefit worth modeling.

But the IUL Still Has to Earn Its Place

Maybe additional qualified-plan contributions make more sense.

Maybe a taxable brokerage account does.

Maybe paying down debt does.

Maybe reinvesting in the business does.

Maybe an IUL does.

The answer should come from the numbers and your objectives, not from the product someone happens to sell.

Here’s the Self-Employed Stress Test I’d Want to See

1. Calculate normal annual personal income.
2. Separate normal income from unusually strong years.
3. Identify business operating reserves.
4. Identify personal emergency reserves.
5. Estimate quarterly and annual tax obligations.
6. List current retirement accounts.
7. Separate Traditional and Roth balances.
8. List taxable investments.
9. List major personal and business debts.
10. Estimate business value separately from liquid retirement assets.
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 several weak and 0% indexed-crediting periods.
17. Run no additional future JUMPs.
18. Reduce business income for two or three years.
19. Move retirement earlier.
20. Increase retirement spending.
21. Reduce the assumed business-sale value.
22. Delay the assumed business sale.
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 a Very Simple Question

“Did adding the IUL make my retirement system stronger?”

Not:

“Did the illustration show a big number?”

Those aren’t the same test.

The Emotional Side of Being Self-Employed Matters Too

You got used to handling things yourself.

If something goes wrong, you fix it.

If revenue drops, you find another client.

If the business needs something, you figure it out.

That independence becomes part of your identity.

Retirement Can Challenge That Identity

Eventually you have to imagine a version of life where you aren’t solving every financial problem by simply earning more next month.

That can be uncomfortable.

You may be thinking:

“I’ve always been able to make more money if I needed it.”

But do you want your retirement plan to require you to keep doing that at 72?

Or 78?

The Fear Underneath It Is Usually Independence

You don’t want to spend decades building your own life and then become financially dependent on someone else.

“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 retirement planning isn’t simply about maximizing a number.

It’s about creating choices before you need them.

When Can an IUL Be Worth Evaluating If You’re Self-Employed?

It may deserve a serious comparison when:

• Your business produces durable excess cash flow beyond operating needs
• Your personal and business emergency reserves are already addressed
• You have a legitimate permanent life insurance objective
• You have evaluated the qualified retirement-plan opportunities available to you
• You want another potential retirement-income source
• You have substantial tax-deferred retirement assets
• You understand the policy-loan mechanics
• You understand future JUMPs require future underwriting
• You can support long-term funding through normal business cycles
• You are willing to stress-test the strategy
• The modeled benefit is meaningful enough to justify the policy’s costs and complexity

When Should You Slow Down?

If you’re using money needed for quarterly taxes.

If you’re using payroll money.

If your business reserves are thin.

If your personal emergency fund is weak.

If your income is unstable and the planned funding assumes your best year continues forever.

If there isn’t a legitimate permanent insurance objective.

If future JUMPs are being presented as guaranteed.

If positive arbitrage is being presented as guaranteed.

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

If nobody will show you weak crediting.

If nobody will run the strategy without future JUMPs.

If nobody will extend the projection through age 95.

That’s when you need better math before making a decision.

The Bottom Line

Is an IUL worth considering if you’re self-employed?

Potentially.

But self-employment isn’t the reason to buy one.

The reason would be that the policy solves a specific problem inside your retirement plan and produces a result that justifies its costs and complexity.

Maybe you want another potential retirement-income source.

Maybe you’re building large tax-deferred balances and want another bucket with different characteristics.

Maybe your business represents too much of your future retirement wealth.

Maybe permanent life insurance already serves a legitimate family or legacy need.

Those are reasons to run the numbers.

Then make the strategy compete with your alternatives.

Let the math do the talking.

How We Test an IUL for a Self-Employed Person at FPP Financial

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

We start with what you already have.

Your business income.

Your business reserves.

Your personal cash.

Your retirement accounts.

Your taxable investments.

Your real estate where applicable.

Your business value.

Your debt.

Your retirement age.

Your desired retirement income.

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 business income.

We move retirement earlier.

We reduce assumed business-sale proceeds where applicable.

We extend the projection through age 95 and beyond.

Then we compare projected spendable retirement income across the strategies being evaluated 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 Self-Employed 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.

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 vs. SEP IRA for Business Owners: Which Is Better for Retirement?
• IUL vs. Solo 401(k): Which Is Better 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, accounting, business, retirement, underwriting, or insurance advice. Indexed universal life insurance is permanent life insurance and is not a qualified retirement plan, SEP IRA, Solo 401(k), Traditional IRA, Roth IRA, brokerage account, savings account, mutual fund, index fund, business investment, or direct investment in a market index.

References to self-employed income, business revenue, business value, 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, business value, expected investment performance, policy performance, or retirement-income results for any individual.

Self-employed individuals may have access to retirement-plan options based on business structure, employee status, compensation, plan eligibility, applicable contribution limits, and current tax law. This article does not recommend replacing, reducing, or foregoing contributions to a SEP IRA, Solo 401(k), IRA, Roth account, employer-sponsored plan, or other retirement arrangement. Available options should be reviewed with qualified tax and financial professionals.

Business owners and self-employed individuals should maintain appropriate business and personal liquidity based on their individual circumstances. Funding a long-term life insurance strategy with money needed for payroll, estimated taxes, operating expenses, debt service, working capital, emergencies, or other near-term obligations can create financial risk.

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 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 tax-deferred retirement accounts, Roth accounts, taxable investments, business ownership, real estate, and life insurance have materially different tax rules, liquidity characteristics, contribution rules, costs, risks, distribution rules, and planning uses. They should not be treated as economically identical.

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, business return, or S&P 500 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 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, liquidity, business-sale assumptions where applicable, insurance needs, and death-benefit objectives.

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, business-valuation, or business-sale advice. Self-employed individuals should consult qualified tax, legal, accounting, insurance, financial, business, and other appropriate professionals regarding their individual circumstances before purchasing or modifying life insurance, changing retirement-plan contributions, taking policy loans, accessing policy values, selling a business, or implementing any retirement-income strategy discussed here.