What Happens to Your IUL JUMP Strategy If Your Health Changes?

You buy an IUL at 48.

You’re healthy.

You qualify for the coverage.

You start funding the policy.

The IUL JUMP Strategy shows future JUMPs that could increase the Matching Indexed Participating Loan level as the strategy progresses.

Then you’re 54.

Your doctor finds something.

Maybe it’s diabetes.

Maybe you have a heart issue.

Maybe you receive a cancer diagnosis.

Maybe there’s no dramatic diagnosis at all, but your health isn’t what it was six years ago.

Now the retirement projection sitting in your desk drawer suddenly feels very different.

And the first thought is usually:

“What happens to my IUL now?”

Then comes the second question:

“What happens to all those future JUMPs we were planning on?”

Those are two different questions.

And understanding the difference matters.

Your Existing Policy and Your Future JUMPs Are Not the Same Underwriting Decision

This is the first distinction I want someone to understand.

You went through underwriting when the original life insurance coverage was issued.

A later change in health does not mean you simply go back through time and become a different person on the date the original policy was issued.

Your existing policy is governed by its contract, including its premiums, policy charges, loan provisions, lapse provisions and other terms.

But the IUL JUMP Strategy introduces another issue.

Future planned JUMPs involve requests for additional death benefit.

That additional insurance can require new underwriting and carrier approval.

That’s where a later health change can become extremely important.

The Question Isn’t Only “Can I Keep My IUL?”

For someone using a conventional IUL, the conversation may focus heavily on the existing policy.

For someone using the JUMP Strategy, there’s another layer:

“Can I still qualify for the additional insurance required for my next planned JUMP?”

That’s a different question from whether the policy you already own remains in force under its contract.

Here’s Why That Matters

Look at a simplified version of the JUMP progression using a $10,000 annual client contribution:

The client contribution in this example stays at:

$10,000 per year.

The progression comes from successful future JUMPs that can increase the Matching Indexed Participating Loan level.

Now Imagine Your Health Changes After Year 5

Let’s say the Year 3 JUMP was approved.

The Year 5 JUMP was approved.

You’ve reached:

$10,000 client contribution + $20,000 Matching Indexed Participating Loan = $30,000 total annual funding shown.

Then your health changes before the Year 7 application.

The original projection assumed the next matching-loan level would become $30,000.

But now that future death-benefit increase still has to be approved.

Your new health information can affect that underwriting decision.

A Health Change Does Not Mean the Previous Successful JUMPs Automatically Vanish

This is critical.

Under the JUMP mechanics we’re discussing, if a health issue prevents the next JUMP from being approved, you don’t automatically lose the successful progression that already occurred.

If you previously reached the $20,000 Matching Indexed Participating Loan level, a later health problem does not automatically send the strategy all the way back to zero under the mechanics described here.

A missed JUMP can pause the progression rather than automatically resetting the strategy.

The actual policy contract and applicable carrier procedures govern the individual case.

What Could the Strategy Look Like After the Health Change?

Using our example, instead of progressing from:

$20,000 matching-loan level to $30,000,

the strategy may remain at the already-achieved:

$20,000 matching-loan level.

With the client’s $10,000 contribution, that would continue to show:

$30,000 of annual funding under the example.

The strategy has stopped climbing for the moment.

That is not the same thing as starting over.

What Happens to the Matching Indexed Participating Loans You Already Have?

They remain part of the policy economics.

Remember what these loans actually are.

They aren’t free money.

They aren’t an employer match.

They aren’t a tax credit.

They are policy loans.

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

The associated policy indebtedness doesn’t disappear because your health later changes.

Your Health Doesn’t Erase the Loan Cost Either

With the policy structure we currently use for the IUL JUMP Strategy, the applicable loan rate is currently 5%, with a contractual maximum loan rate of 6% for the applicable loan feature.

If your future JUMP progression changes, those existing loan economics still matter.

That’s one reason the policy should be rerun rather than leaving the original illustration untouched.

Could You Apply for Another JUMP Later?

Under the strategy mechanics we’re discussing, you may potentially reapply at a later policy anniversary if your situation improves.

That doesn’t mean a temporary medical issue will always improve.

It doesn’t mean the carrier will approve the later request.

And it doesn’t mean every health condition will be treated the same way.

A future application remains subject to the underwriting requirements and approval standards applicable at that time.

Reapplying is an opportunity to be reconsidered. It is not a promise of approval.

Not Every Health Change Has the Same Underwriting Effect

“My health changed” can mean a hundred different things.

A minor condition is not the same as a major diagnosis.

A resolved issue is not necessarily viewed the same as an active condition.

A controlled condition may be evaluated differently from an uncontrolled one.

Medical history, severity, treatment, recovery, medications and other factors can enter the underwriting process.

The insurance company makes that determination under its applicable underwriting guidelines.

Don’t Try to Diagnose Your Own Insurability

This happens all the time.

Someone receives a diagnosis and immediately thinks:

“Nobody will insure me now.”

Another person has a medical issue and thinks:

“It’s not a big deal, so underwriting won’t care.”

Either assumption can be wrong.

Your doctor’s opinion about your health and an insurance company’s underwriting decision are not the same thing.

If another JUMP is being considered, the actual underwriting process determines what can be approved.

But Don’t Assume the Original Projection Is Still Valid Either

This is the other mistake.

If your original illustration assumed JUMPs in Years 3, 5, 7, 9 and 11, and a health change now puts the Year 7 JUMP in question, don’t keep planning retirement around the original age-65 income number without updating it.

Something important has changed.

The math needs to change with it.

Run the Policy From the Level You’ve Already Achieved

This is the first stress test I would want.

Suppose you’ve reached the $20,000 matching-loan level.

Run the strategy assuming that’s as far as the JUMP progression ever goes.

No Year 7 increase.

No Year 9 increase.

No Year 11 increase.

Now look at the projected retirement income.

Does the policy remain durable?

What happens to the accumulated loans?

What happens at age 80?

Age 90?

Age 95?

What net death benefit remains under the modeled assumptions?

That’s the projection I want to see.

Then Run a Delayed-JUMP Scenario

Maybe the next JUMP doesn’t happen on schedule.

Maybe you reapply later and receive approval.

Run that as a separate scenario.

Now you can compare:

• The original JUMP schedule
• A delayed future JUMP
• No additional JUMPs after the level already achieved

Now you know how much of the retirement outcome is tied to future insurability.

Then Make the Financial Assumptions Worse Too

Don’t give the policy a perfect financial environment just because you’ve already stressed the underwriting.

Use the current 5% applicable loan rate.

Then test the contractual 6% maximum.

Lower the indexed-crediting assumption.

Combine the lower crediting assumption with the higher loan rate.

Run retirement longer.

Then see whether the policy still supports the planned distributions.

Why This Matters With the Matching Indexed Participating Loan

Under the indexed strategy used in our example, both client-funded dollars and loan-funded dollars have the same potential 10% cap and 0% indexed-crediting floor.

The loan-funded dollars also carry the applicable loan cost.

So the JUMP model isn’t simply:

“Borrow money and magically make more money.”

There is a spread that has to work economically.

The 6.87% Historical Example

One historical analysis used with the strategy examined annual S&P 500 price changes from 2006 through 2020.

Dividends were excluded because the policy is not directly invested in the index.

The analysis applied a 10% cap and 0% indexed-crediting floor to annual S&P 500 price changes.

Negative annual changes were treated as 0% for purposes of the indexed-crediting calculation.

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

Under those assumptions, the historical period produced a:

6.87% average indexed-crediting result.

That’s not the historical S&P 500 return.

It’s not a guaranteed future crediting rate.

It’s not a guaranteed policy return.

Why the Current 5% Loan Rate Matters

Using that historical indexed-crediting example:

6.87% – 5.00% = 1.87 percentage points.

That’s the modeled positive spread.

If applicable indexed crediting exceeds the loan cost, the loan-funded portion can experience favorable economics under the model.

If the policy credits 0% for the applicable period while the loan cost is 5%, the economics are unfavorable for that period.

Positive arbitrage is not guaranteed.

Why Successful JUMPs Can Matter So Much to the Projection

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

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

Those aren’t S&P 500 returns.

They aren’t IUL indexed-crediting rates.

They aren’t guaranteed policy returns.

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

Now Imagine Your Health Stops the Progression at Year 5

The original projection may have assumed additional JUMPs at Years 7 and 9.

If those don’t happen, you cannot simply keep adding the modeled effects associated with progression that never occurred.

The strategy needs to be recalculated from the actual level achieved.

That’s the honest comparison.

What Happens to the Up-to-300% More Projected Retirement Income?

In certain modeled comparisons we’ve evaluated, the IUL JUMP Strategy has produced up to approximately 300% more projected retirement income than the 401(k), Traditional IRA, or comparable tax-deferred retirement strategy being evaluated.

That’s a major modeled difference.

But now ask:

“Did the model producing that result assume successful future JUMPs?”

If it did, future insurability is part of the path to that result.

A health change doesn’t magically make the 300% number true or false.

It means you update the assumptions and rerun the comparison.

The 300% Number Should Make You More Skeptical, Not Less

If somebody shows you a massive projected retirement-income advantage, ask harder questions.

What crediting assumptions were used?

What loan rate was used?

What policy charges were included?

How many future JUMPs were assumed?

What happens if health prevents those future JUMPs?

What happens if the loan rate reaches 6%?

What happens if indexed crediting is lower?

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

Show me exactly where the difference comes from.

What About the Approximately 40% More Than a Traditional IUL?

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

The JUMP mechanics are part of what can create that modeled difference.

So if a health change prevents future progression, rerun that comparison too.

Don’t assume the original 40% modeled difference remains unchanged.

Could a Health Change Make the Existing Death Benefit More Valuable to You?

There’s another side to this conversation people sometimes overlook.

You may have originally bought the policy with retirement income as a major goal.

Then your health changes.

Suddenly the life insurance component may feel more important than it did when you were healthy.

That’s one reason I don’t like talking about an IUL as though it’s simply another retirement account.

It isn’t.

It’s life insurance with cash-value and policy-access features.

The death benefit is a real part of the financial picture.

Don’t Make a Panic Decision After a Diagnosis

This is especially important.

Someone receives bad medical news and suddenly wants to change everything.

Cancel the policy.

Stop funding it.

Borrow heavily.

Move money somewhere else.

That’s exactly when you want to understand the contract and current policy values before making an irreversible move.

A surrender, lapse, large loan or major funding change can have financial and tax consequences.

Look at the numbers first.

Your Existing Coverage May Be Harder to Replace After a Health Change

This is another reason to be careful.

If your health is materially worse than when the original policy was issued, obtaining new life insurance may be more difficult, more expensive or unavailable under then-current underwriting.

That doesn’t automatically mean you should keep an existing policy at any cost.

It means replacement decisions deserve careful analysis.

Don’t cancel something you may not be able to recreate without understanding exactly what you’re giving up.

The Existing Policy Still Has to Perform

A health change doesn’t excuse bad policy economics.

You still need to review:

• Current cash value
• Current death benefit
• Policy charges
• Cost of insurance
• Current loan balances
• Applicable loan rate
• Crediting results
• Future funding
• Projected retirement distributions
• Policy durability

The insurance need may have become more important, but the policy still needs to be managed.

What If the Health Change Happens Before the First JUMP?

This is one of the tougher scenarios.

Imagine the original policy was issued in Year 1.

Then your health changes before the planned Year 3 JUMP.

You haven’t achieved a Matching Indexed Participating Loan level yet in the example.

If the additional death benefit needed for that planned JUMP isn’t approved, the original projected JUMP progression may not begin on schedule.

That’s why future approval shouldn’t be represented as though it was guaranteed at initial issue.

What If the Health Change Happens After Several Successful JUMPs?

Now the picture is different.

You’ve already achieved some progression.

The matching-loan level already reached becomes part of the current strategy under the mechanics described here.

If the next JUMP isn’t approved, the progression can pause at that level rather than automatically starting from the beginning.

That’s why the timing of the health change matters to the actual policy projection.

What If Your Health Improves?

Then a future application may be worth evaluating at an appropriate policy anniversary.

But don’t write future approval into your retirement plan before it happens.

Model it as a possible future path.

Then maintain another projection that does not require that approval.

That gives you a Plan A and a stress-tested Plan B.

That’s How I Would Want My Own Retirement Plan Built

Not:

“Everything works if every assumption works.”

But:

“Here’s what happens if something doesn’t.”

That’s a much stronger retirement conversation.

Because Health Is One of the Things You Cannot Schedule

You can plan your contribution.

You can plan your retirement date.

You can plan your Social Security strategy.

You can plan when you’d like the next JUMP to happen.

You cannot put:

“Remain perfectly healthy for the next 15 years”

on a calendar and guarantee it happens.

So if future insurability is part of the strategy, it belongs in the risk analysis.

The Emotional Reaction Is Completely Different Once It’s Your Health

It’s easy to talk about underwriting when you’re healthy.

It feels like paperwork.

Then a doctor says something you weren’t expecting.

Now you’re not thinking about a life insurance illustration.

You’re thinking about your spouse.

Your retirement.

Your kids.

How long you’ll be able to work.

Whether the plan still works.

And Your Mind Goes Straight to the Worst-Case Scenario

“Did we wait too long?”

“What happens if I can’t qualify again?”

“What if this changes everything?”

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

Those are the questions a retirement strategy needs to survive.

Because You Still Want to Stay Independent

A health problem can make that fear even stronger.

You don’t want your spouse scrambling financially.

You don’t want your children taking over because the retirement plan failed.

You don’t want to become financially dependent on people you spent your whole life trying to protect.

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

“We should be able to handle this ourselves.”

That’s why the strategy needs a version that doesn’t require everything to go perfectly.

So, What Happens to Your IUL JUMP Strategy If Your Health Changes?

A health change after your original policy is issued does not automatically mean the policy and successful JUMP progression you already have simply disappear.

But future planned JUMPs can require additional life insurance underwriting and carrier approval.

If your health has changed, that can affect whether the additional death benefit needed for the next planned JUMP is approved.

If the next JUMP isn’t approved, under the mechanics described here:

A missed JUMP can pause the progression rather than automatically resetting the strategy.

You may remain at the matching-loan level already achieved, subject to the actual policy contract and applicable carrier procedures.

You may potentially reapply at a later policy anniversary if circumstances improve, but future approval is never something I would call guaranteed.

The Retirement Projection Should Change When Your Health Situation Changes

Don’t keep the old illustration simply because you liked the number.

Run the original progression.

Run a delayed-JUMP scenario.

Run a no-more-JUMPs scenario.

Use the current 5% applicable loan rate.

Stress-test the contractual 6% maximum.

Lower the indexed-crediting assumption.

Run retirement longer.

Then compare the projected retirement income.

How We Look at This at FPP Financial

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

If your health changes, I don’t want to tell you:

“Don’t worry, everything will be fine.”

I want to show you what the change can actually do to the strategy.

We’ll identify the matching-loan level already achieved.

We’ll review the current policy values.

We’ll look at the death benefit.

We’ll account for outstanding policy indebtedness.

We’ll identify which future JUMPs still require approval.

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

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

We’ll lower the indexed-crediting assumptions.

We’ll model the strategy with no more JUMPs.

Then we’ll compare the projected retirement income.

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

Want to See What Your JUMP Strategy Looks Like If Your Health Changes?

If you’re considering the strategy now, this is a stress test worth seeing before you start.

If you already own the policy and your health has changed, it’s even more important.

We’ll look at what has already been achieved.

We’ll identify what still requires future underwriting.

We’ll test what happens if the next JUMP isn’t approved.

We’ll test what happens if no additional JUMPs are approved.

We’ll account for the existing policy loans and charges.

Then we’ll compare the updated projected retirement income.

If the strategy remains strong without future JUMPs, you should see it.

If the retirement projection relies heavily on future insurability, you should see that too.

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

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

Show me exactly where the difference comes from.

Let the math do the talking.

Schedule Your Tax-Free Retirement Strategy Meeting

Explore More

• Why Do Future IUL JUMPs Require New Underwriting?
• What Happens If You Don’t Qualify for Your Next IUL JUMP?
• What Is the IUL JUMP Strategy and How Does It Work?

Disclosure

This material is for educational purposes only and is not intended as individualized investment, securities, tax, legal, medical, underwriting or insurance advice. Indexed universal life insurance is permanent life insurance and is not a qualified retirement plan, IRA, brokerage account or direct investment in a market index.

An insured’s health changing after policy issue does not by itself describe the contractual status of an existing policy. The rights, obligations, premiums, charges, benefits, lapse provisions, loan provisions and other terms of an existing policy are governed by the actual insurance contract. Policy owners should review the actual contract and current policy information before making changes following a health event.

Future JUMPs and associated death-benefit increases are subject to carrier approval and applicable underwriting requirements. Future approval is not guaranteed by the initial policy approval. A change in health may affect eligibility for additional life insurance coverage. Medical history, diagnosis, treatment, medications, severity, recovery and other factors may be considered under applicable underwriting guidelines.

Medical underwriting is not the only consideration for future coverage. Financial, occupational, avocational and other underwriting factors may also affect future approval. Actual underwriting requirements and decisions are controlled by the insurance company.

Under the strategy mechanics described in this article, failure to obtain approval for a future planned JUMP may pause future progression rather than automatically eliminating prior successful JUMPs or returning the strategy to its original matching-loan level. Actual treatment of an individual policy is governed by the insurance contract, applicable carrier procedures, underwriting decisions and the circumstances of the policy at that time.

A policy owner may potentially be able to apply for additional coverage at a later policy anniversary if circumstances change. A later application remains subject to applicable underwriting requirements and approval. Improvement in health does not guarantee future approval.

Planned death-benefit increases under the JUMP Strategy are intended to create additional policy funding capacity while seeking to maintain the intended non-MEC structure. Increasing a death benefit does not by itself guarantee that a policy will avoid Modified Endowment Contract status. Actual premium timing, policy structure, death benefit, applicable tax rules, policy changes and other factors must be considered.

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

Existing policy indebtedness associated with prior Matching Indexed Participating Loan activity does not automatically disappear because an insured’s health changes or a future JUMP is not approved. Policy loans generally accrue applicable loan charges and can reduce policy values and death benefits and increase lapse risk. Outstanding policy indebtedness generally reduces the net death benefit payable under the insurance contract.

The JUMP Strategy is modeled with applicable loan charges carried forward during the accumulation design rather than requiring the client to pay those charges out of pocket each year. This does not eliminate the economic cost of borrowing, guarantee positive arbitrage or guarantee that policy values will remain sufficient to support outstanding indebtedness.

Indexed universal life insurance does not directly invest in a market index, does not own the underlying index securities and does not receive index dividends. Indexed interest is determined according to applicable policy crediting terms, which may include caps, participation rates, spreads and other provisions.

A 0% indexed-crediting floor does not guarantee that overall policy value cannot decline. Policy charges, cost of insurance, loan costs, withdrawals and other policy mechanics continue to apply. Caps, participation rates, spreads, loan rates and other nonguaranteed elements may change when permitted by the insurance contract.

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, Modified Endowment Contract status, policy lapse, surrender and other circumstances. A policy that lapses or is surrendered with gain and outstanding indebtedness may create taxable income.

References to the $10,000 annual contribution example, JUMP progression, 6.87% historical indexed-crediting example, 1.87 percentage-point modeled positive spread, modeled effective results of 8.74%, 11.61%, 14.48% and 17.35%, current 5% loan rate, contractual maximum 6% loan rate, approximately 40% more projected retirement income, or up to approximately 300% more projected retirement income are illustrative and are not guarantees of future policy performance, positive arbitrage, policy durability, funding capacity, non-MEC status, future JUMP approval, death benefit or retirement income.

The up-to-approximately-300% projected retirement-income result cited in this article refers to certain modeled comparisons involving the IUL JUMP Strategy and a 401(k), Traditional IRA or comparable tax-deferred retirement strategy. It is not a universal result or guarantee. If a modeled comparison assumes successful future JUMPs, a health change that affects future underwriting approval can materially change the projected result. The comparison should be updated using the actual JUMP progression achieved.

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. Changes to future JUMP progression can materially alter the modeled comparison.

The historical 6.87% indexed-crediting example discussed in this article is based on an analysis of annual S&P 500 price changes from 2006 through 2020, excluding dividends, and applying the stated 10% cap and 0% indexed-crediting floor. Historical results do not predict future policy performance. The modeled effective JUMP results discussed above are not S&P 500 returns, indexed-crediting rates or guaranteed policy returns.

Positive arbitrage is not guaranteed. Periods in which indexed crediting is below the applicable loan cost can produce unfavorable loan economics. Policy charges and other expenses must also be considered when evaluating overall policy performance.

A health change, missed JUMP or delayed JUMP can materially change projected funding, policy values, indebtedness, death benefits and retirement-income results. Illustrations should be updated as actual policy performance, underwriting results and other assumptions change.

Replacing, surrendering, reducing, borrowing against or otherwise materially changing an existing life insurance policy can have financial, insurance and tax consequences. This can be especially important after a health change if obtaining replacement coverage may be more difficult or costly. Review the existing contract, current policy values and available alternatives before making a replacement or surrender decision.

Policy-specific guarantees, nonguaranteed elements, underwriting requirements, loan provisions, loan rates, caps, participation rates, spreads, crediting methods, expenses, surrender provisions, MEC testing, lapse provisions and death-benefit provisions should be verified against current carrier-approved illustrations and the actual insurance contract.

FPP Financial does not provide tax, legal or medical advice. Consult qualified tax, legal, medical and financial professionals regarding your individual circumstances before purchasing, replacing, surrendering or materially changing life insurance or implementing any retirement-income strategy discussed here.