What Happens If Your IUL Policy Loans Get Too Large Compared With Your Cash Value?

Here’s a question I would ask anyone planning to use an IUL for retirement income:

“How large can the policy loans get before you start getting uncomfortable?”

Most people don’t know.

They’ve been shown how much money they can potentially access.

They’ve been shown projected retirement income.

They may even know the projected cash value.

But they haven’t been shown the relationship between the policy value and the outstanding indebtedness over time.

That’s the part I want to see.

A $500,000 Policy Loan Is Not Automatically Dangerous

The dollar amount alone tells me very little.

If you tell me someone has a $500,000 policy loan, my next question is:

“What does the rest of the policy look like?”

How much policy value is supporting it?

What is the death benefit?

What is the applicable loan rate?

How is the policy actually performing?

How much money is still being taken out?

How old is the insured?

How long does the policy need to last?

Without those answers, $500,000 is just a number.

A Smaller Loan Isn’t Automatically Safe Either

Imagine another policy with only $150,000 of outstanding indebtedness.

That sounds much safer than $500,000.

Maybe it is.

Maybe it isn’t.

If policy values have deteriorated, charges are putting pressure on the policy, retirement distributions continue, and the policy has very little room left for unfavorable performance, the smaller loan could still be a serious concern.

This is why I don’t judge policy-loan risk by the loan balance alone.

Look at the Relationship

There are multiple moving pieces:

• Policy cash value
• Cash surrender value
• Outstanding policy indebtedness
• Applicable loan charges
• Indexed-crediting results
• Cost of insurance
• Administrative and other policy charges
• Withdrawals and retirement distributions
• Net death benefit
• Remaining time horizon

Those pieces interact.

That’s the real analysis.

Is There a Universal Safe IUL Loan-to-Cash-Value Percentage?

No universal percentage should be treated as safe across every IUL contract and retirement strategy.

You may hear someone say:

“As long as the loan stays under X% of cash value, you’re fine.”

I wouldn’t build a retirement strategy around a rule of thumb like that.

Different policies have different loan provisions, charges, crediting mechanics, death-benefit structures and lapse provisions.

The owner’s age and distribution needs matter too.

Why Does the Relationship Get More Important Later in Retirement?

Because retirement income may continue while policy indebtedness is already substantial.

At age 65, the policy might have plenty of room.

Then another ten years of distributions happen.

Now you’re 75.

Then another ten.

Now you’re 85.

The question changes from:

“Can I take this year’s income?”

to:

“Can I keep doing this without putting unacceptable pressure on the policy?”

This Is Why Age 95 Matters

If you’re building retirement income around policy loans, don’t stop the projection at age 80 because the numbers still look pretty.

Run it longer.

If retirement begins at 65 and you live to 95, that’s a 30-year retirement.

What does the loan position look like then?

What does policy value look like?

What does the net death benefit look like?

Is the policy still projected to remain in force?

Here’s the Mistake: Looking Only at Gross Cash Value

Suppose an illustration shows:

$1,000,000 of projected cash value.

That sounds fantastic.

But suppose there is also substantial outstanding policy indebtedness.

You need to understand both sides.

Don’t let one big number distract you from another big number.

The Reverse Mistake Happens Too

Someone sees a large policy-loan balance and panics.

Again, that’s incomplete.

With certain participating-loan structures, value associated with an outstanding policy loan may continue participating in an applicable indexed-crediting strategy according to the policy’s provisions.

So the analysis is not as simple as:

“Loan equals missing cash.”

The actual policy mechanics matter.

Loan Cost Still Matters

Even when values associated with a participating loan continue to receive applicable indexed crediting, the loan isn’t free.

There is an applicable loan cost.

That creates an economic relationship between:

the applicable indexed-crediting result

and:

the applicable policy-loan cost.

What Happens When Crediting Is Higher Than the Loan Cost?

Suppose the applicable indexed-crediting result is:

8%.

And the applicable loan cost is:

5%.

The simplified relationship is:

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

That’s an example of positive arbitrage.

That favorable relationship can help the modeled economics.

It isn’t guaranteed.

Now Flip It

Suppose indexed crediting is:

2%.

And the applicable loan cost remains:

5%.

The simplified relationship becomes:

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

Now the relationship is working the other direction.

And at 0% Crediting?

The simplified relationship becomes:

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

That’s why a 0% indexed-crediting floor does not mean:

“Nothing bad can happen to my policy.”

Policy-loan costs and other policy charges can still matter.

Now Imagine That Happening When Loans Are Already Large

This is where the loan-to-policy-value relationship becomes more important.

An unfavorable crediting period early in the policy may be manageable.

The same unfavorable period later in retirement, when policy indebtedness is substantial and retirement distributions continue, can create a very different result.

Timing matters.

What Should You Watch for as the Loan Position Grows?

I would watch for several things.

First, policy values aren’t keeping pace with the original projection.

Second, outstanding indebtedness is increasing faster than expected.

Third, the applicable loan rate is higher than originally modeled.

Fourth, retirement distributions are larger than originally planned.

Fifth, projected net death benefit is shrinking faster than expected.

Sixth, the policy has less room to absorb unfavorable crediting or higher charges.

Those are reasons to rerun the math.

Don’t Wait for a Lapse Warning to Start Paying Attention

Policy management shouldn’t be:

“Everything looked fine 12 years ago when I bought it.”

You have new information every year.

Actual policy values.

Actual loan position.

Actual credited results.

Current applicable loan rate.

Updated retirement needs.

Use it.

Now Let’s Apply This to the IUL JUMP Strategy

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

The matching amount is policy-loan activity.

It is not a free carrier contribution.

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

That means policy indebtedness is intentionally part of the design.

That’s Why Loan Monitoring Isn’t Optional

If your strategy intentionally uses policy loans during accumulation and may later use additional policy loans for retirement distributions, you should understand how that indebtedness develops over time.

You don’t hide it.

You model it.

Here’s the Basic JUMP Funding Example

Suppose the client contributes:

$10,000 per year.

The example progression is:

By Year 11, the Client Still Contributes $10,000 in This Example

The additional:

$50,000

shown in the Year 11 example comes from Matching Indexed Participating Loan funding.

It is not a $50,000 gift.

It is policy-loan activity.

That means the policy-loan position matters.

Prior Loans Don’t Simply Disappear When the Next JUMP Happens

Later JUMPs add loan activity on top of the prior outstanding policy-loan structure.

Moving from a $10,000 matching level to $20,000 does not mean the earlier loan has simply been paid off.

The loans accumulate under the strategy mechanics being modeled.

So the question isn’t merely:

“How much additional funding did the JUMP create?”

It’s also:

“What is happening to the policy indebtedness supporting that strategy?”

Think of the Strategy as Two Buckets

Bucket 1: client-funded money.

Bucket 2: Matching Indexed Participating Loan-funded money.

Under the example we’re discussing, both buckets can participate in the applicable indexed-crediting strategy with a potential:

10% cap

and:

0% indexed-crediting floor.

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

The Current Applicable Loan Rate Is 5%

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

5%.

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

6%.

If we’re evaluating whether indebtedness could become too large relative to policy values, I want both rates tested.

Why Stress-Test 6%?

Because you’re not buying this policy for next Thursday.

It may be part of your retirement strategy for decades.

Five percent is the current applicable rate.

Six percent is the contractual maximum for the applicable loan feature.

Show me both.

Now Lower the Crediting Assumption at the Same Time

This is where stress testing becomes useful.

Don’t test only:

higher loan cost.

Test:

higher loan cost plus weaker crediting.

Because bad variables don’t politely arrive one at a time.

Try 3% Crediting and a 6% Loan Cost

The simplified relationship becomes:

3% – 6% = an unfavorable 3-percentage-point difference.

Then test a 0% crediting period:

0% – 6% = an unfavorable 6-percentage-point difference.

Now put those periods into a projection where substantial indebtedness already exists.

That’s a much more meaningful test.

What About the Historical 6.87% Example?

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

Dividends were excluded.

The analysis applied the example strategy’s:

10% cap

and:

0% indexed-crediting floor.

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

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

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

6.87%.

At a 5% Loan Rate, That’s a Simplified 1.87-Percentage-Point Spread

The calculation is:

6.87% – 5.00% = 1.87 percentage points.

That’s the modeled positive-arbitrage example.

But don’t treat 1.87% as something the policy receives every year.

It doesn’t.

Crediting varies.

Loan economics vary.

At the 6% Maximum Loan Rate, the Same Historical Example Changes

The simplified relationship becomes:

6.87% – 6.00% = 0.87 percentage points.

Same historical crediting assumption.

Different loan cost.

Smaller modeled spread.

That’s Why I Care About Margin

How much room does the policy have when assumptions get worse?

If a small change in the loan rate causes the projection to fall apart, I want to know that before retirement.

If a few weak crediting periods create serious pressure, I want to know that too.

What About the Modeled JUMP Effective Results?

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

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

Those figures are modeled effective results under the assumptions used in that analysis.

They are not indexed-crediting rates.

They are not S&P 500 returns.

They are not guaranteed policy returns.

They also do not eliminate the need to monitor outstanding indebtedness.

A Strong Modeled Result Doesn’t Make the Loan Invisible

This is important.

If a strategy models a strong effective result, you still track:

Cash value.

Cash surrender value.

Policy indebtedness.

Loan costs.

Policy charges.

Net death benefit.

Retirement distributions.

Policy durability.

The loan doesn’t stop mattering because the projection looks good.

What Happens When Retirement Begins?

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

12% per year of policy/account value

under specific assumptions.

That is not a universal safe withdrawal rate.

It is a modeled distribution level.

The policy has to support it under the assumptions being tested.

Now Combine Retirement Distributions With Existing Policy Indebtedness

This is the part people need to see.

The policy may already have loan activity from the JUMP accumulation design.

Then retirement starts.

Additional policy access may create more pressure.

Meanwhile:

loan costs continue,

policy charges continue,

and indexed crediting varies.

That’s why monitoring the relationship becomes more important as retirement progresses.

When Should You Rerun the Projection?

I wouldn’t wait for a crisis.

Rerun it when actual policy performance starts moving materially away from the original assumptions.

Rerun it when the loan rate changes.

Rerun it when retirement distributions change.

Rerun it when a future JUMP isn’t approved.

Rerun it when retirement starts earlier than expected.

Rerun it when your legacy goal changes.

The original illustration shouldn’t become a museum piece.

What If the Loan Position Is Getting Uncomfortable?

That’s when you review the options actually available under the contract and the client’s financial situation.

That may include modeling lower future distributions.

It may include modeling outside payments toward indebtedness.

It may include changing other aspects of policy management where permitted.

The right response should come from the actual numbers, not panic.

Why Not Just Pay the Loan Down?

Because outside money used to reduce policy indebtedness has a cost too.

If you send $25,000 into the policy to reduce a loan, that’s $25,000 you cannot use somewhere else.

So model the effect.

How much does it improve projected policy durability?

How much does it improve projected net death benefit?

How much retirement income does it protect?

Now you can decide whether the tradeoff makes sense.

What Happens to the Death Benefit as Loans Grow?

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

So don’t look only at the gross death-benefit number.

If legacy matters, look at the projected net death benefit after outstanding indebtedness.

That Creates a Real Tradeoff

You may be able to access more policy value during retirement.

But taking more can affect what remains for beneficiaries.

There’s nothing inherently wrong with choosing more retirement income.

It’s your money and your retirement.

Just understand the tradeoff.

What Happens If Policy Indebtedness Gets Too Close to Available Policy Value?

That’s when the risk can become much more serious.

The exact point and consequences are governed by the insurance contract.

But excessive indebtedness relative to policy values can contribute to policy lapse risk.

And a lapse can create another problem people often overlook.

A Lapse With Outstanding Loans Can Have Tax Consequences

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

That’s why I don’t like saying:

“Policy loans are tax-free.”

That’s too loose.

The tax treatment is tied to the policy remaining properly structured and maintained, among other requirements.

What About a Properly Structured Non-MEC Policy?

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.

But MEC status matters.

Basis matters.

Policy status matters.

Lapse and surrender matter.

Outstanding indebtedness matters.

Now Put the 300% Claim Through This Test

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 large difference.

So I want a large amount of scrutiny behind it.

If the projected retirement income is being supported partly by policy-loan mechanics, show me what happens to those loans.

Don’t Show Me Only the Income Column

Show me:

• Projected retirement income
• Policy value
• Cash surrender value
• Outstanding indebtedness
• Applicable loan rate
• Net death benefit
• Policy status through advanced ages

Then stress-test it.

Run the 300% Comparison at the 6% Loan Rate

If the applicable loan rate is currently 5% and the contractual maximum for the applicable feature is 6%, I want to know what happens at 6%.

Then lower indexed crediting.

Then insert multiple 0% crediting periods.

Then remove future JUMPs.

Then extend longevity.

Then look at the loan-to-policy-value relationship again.

That’s How You Make the 300% Number Earn Your Trust

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

What assumptions created it?

What happens to policy indebtedness?

What happens if the assumptions get worse?

Does the policy remain projected to function through retirement?

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

What About 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.

Again, that doesn’t mean every JUMP design produces 40% more than every other IUL.

The specific policy design, funding, loan mechanics, loan costs, crediting assumptions, charges, distributions and longevity all matter.

If the JUMP strategy shows more retirement income, also show me what happens to policy indebtedness.

What Should You Monitor Every Year?

1. Current policy value
2. Current cash surrender value
3. Outstanding policy indebtedness
4. Applicable loan rate
5. Actual indexed-crediting results
6. Cost-of-insurance and other policy charges
7. Current retirement distributions
8. Projected future distributions
9. Net death benefit
10. Current policy status
11. Projected policy durability
12. Changes from the original illustration

And Ask This Question

“If I keep doing exactly what I’m doing, what does this policy look like at age 85, 90 and 95?”

That’s more useful than asking whether this year’s loan balance feels big.

Because “Too Big” Is Really About Future Pressure

The loan becomes concerning when the overall policy has less room to absorb unfavorable conditions.

That’s what you’re trying to identify before it becomes a problem.

Not after.

This Is the Thought People Have at 2 A.M.

They don’t think:

“I wonder what my policy-loan-to-cash-value relationship is.”

They think:

“What if I’m taking too much and don’t realize it?”

“What if this looks fine now but becomes a problem when I’m 85?”

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

That’s the real question behind the math.

You Don’t Want Your Kids Fixing This Later

If you’re building a retirement strategy at 55, 60 or 65, one of the goals is usually independence.

You want your retirement plan to support you.

You don’t want your children trying to figure out a complicated insurance policy after something has already gone wrong.

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

“We should be able to handle this ourselves.”

Then monitor the strategy while you still have choices.

The Bottom Line

There is no single dollar amount that automatically makes an IUL policy loan too large.

And there is no universal loan-to-cash-value percentage that should be treated as safe for every policy.

The loan needs to be evaluated in relation to:

policy values,

cash surrender value,

loan costs,

indexed crediting,

policy charges,

retirement distributions,

net death benefit,

and how long the policy needs to last.

Don’t ask only:

“How big is my loan?”

Ask:

“How much room does my policy still have?”

How We Test the Loan Position at FPP Financial

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

I don’t want to guess that a policy loan is safe because the cash value still looks large.

We’ll look at the actual policy values.

We’ll look at outstanding indebtedness.

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

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

We’ll lower indexed-crediting assumptions.

We’ll test multiple 0% crediting periods.

We’ll include policy charges.

We’ll test future JUMPs.

We’ll test no future JUMPs.

We’ll test retirement distributions.

We’ll test longevity to age 95 or longer.

And we’ll watch how much room remains between the policy’s values and its growing indebtedness.

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

Want to See How Much Loan Pressure Your Retirement Strategy Can Handle?

Don’t wait until the loan balance scares you.

Stress-test it before retirement.

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.

And if the strategy uses policy loans to help produce those retirement-income results, you should understand exactly what happens to the indebtedness along the way.

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

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

• How Do IUL Policy Loans Affect Cash Value Over 20 or 30 Years?
• What Happens If You Take Too Much Money Out of an IUL in Retirement?
• Can an IUL Lapse in Retirement?

Disclosure

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

There is no universal policy-loan-to-cash-value ratio or percentage that can be represented as safe for every indexed universal life policy. Policy-loan risk is affected by the specific insurance contract, cash value, cash surrender value, outstanding indebtedness, loan provisions, loan rates, policy charges, crediting results, distributions, death-benefit structure, age, longevity, and other factors.

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

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.

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, prevent negative arbitrage, or guarantee that policy values will remain sufficient to support outstanding indebtedness.

With the policy structure discussed in this article, the applicable loan rate is currently 5%, with a contractual maximum loan rate of 6% for the applicable loan feature. The current applicable rate should not be interpreted as a guarantee that the rate will remain at 5%. Current and maximum loan provisions should be verified against current approved policy information and the actual insurance contract.

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

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

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

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

The historical 6.87% indexed-crediting example discussed in this article is based on an analysis of annual S&P 500 price changes from 2006 through 2020, excluding dividends, and applying the stated 10% cap and 0% indexed-crediting floor. Negative annual price changes were replaced by 0% and positive annual price changes above 10% were capped at 10% for purposes of that historical analysis. The resulting annual capped-and-floored figures averaged approximately 6.87%. Historical results do not predict future policy performance and should not be interpreted as a guaranteed future indexed-crediting rate, compound annual growth rate, net policy return, or historical total return of the S&P 500.

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

The modeled effective JUMP results of approximately 8.74%, 11.61%, 14.48%, and 17.35% are not S&P 500 returns, indexed-crediting rates, compound annual growth rates, net returns after policy charges, participation rates, cap rates, or guaranteed policy returns. They are modeled effective results under assumptions used in the referenced JUMP analysis, before accounting for applicable policy charges and other factors.

References to approximately 12% annual retirement distributions describe a modeled distribution level under specific assumptions and should not be interpreted as a universal safe withdrawal rate, guaranteed distribution rate, or assurance that an IUL can sustain that level for any particular period.

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. Excessive policy indebtedness relative to available policy values can contribute to lapse risk. The specific circumstances under which a policy may lapse are governed by the insurance contract.

A policy that lapses or is surrendered with gain and outstanding indebtedness may create taxable income under applicable tax rules. Policy loans should not be described as universally tax-free without considering policy basis, MEC status, policy status, lapse, surrender, outstanding indebtedness, and other applicable circumstances.

Future JUMPs and associated death-benefit increases are subject to future underwriting and approval. Initial policy approval and prior successful JUMPs do not guarantee future increases. Health, income, employment, existing insurance, driving history, occupation, hazardous job duties, risky hobbies, and other applicable underwriting factors may affect eligibility for additional coverage.

Under the strategy mechanics described, failure to qualify for a future JUMP does not necessarily mean prior successful JUMPs or the previously achieved matching-loan level automatically disappear. Actual policy rules govern each case, and retirement-income projections should be updated when future JUMP assumptions change.

Policy 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.

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

The up-to-approximately-300% projected retirement-income result cited in this article refers to certain modeled comparisons involving the IUL JUMP Strategy and a 401(k), Traditional IRA, or comparable tax-deferred retirement strategy. It is not a universal result or guarantee and should not be interpreted as 300% more investment return, indexed interest, policy-loan arbitrage, net policy return, or S&P 500 performance. Policy indebtedness, loan rates, indexed-crediting results, policy charges, future JUMPs, retirement distributions, taxes, longevity, and other assumptions can materially alter projected results.

The approximately-40% projected retirement-income result refers to certain modeled comparisons involving the JUMP Strategy and the traditional IUL structure being evaluated. It is not a universal result or guarantee. Funding, indexed-crediting assumptions, policy charges, loan provisions, loan costs, future JUMPs, death-benefit structure, retirement distributions, longevity, and policy indebtedness can materially alter the comparison.

Policy-specific guarantees, nonguaranteed elements, underwriting requirements, death-benefit options, MEC limits, cost-of-insurance provisions, policy charges, surrender provisions, loan provisions, loan rates, caps, participation rates, spreads, crediting methods, lapse provisions, repayment options, and distribution mechanics should be verified against current approved illustrations and the actual insurance contract.

FPP Financial does not provide tax or legal advice. Consult qualified tax, legal, and financial professionals regarding your individual circumstances before purchasing or modifying life insurance, taking or repaying policy loans, or implementing any retirement-income strategy discussed here.