What Is an IUL Participation Rate and How Does It Affect Indexed Interest?

You open an indexed universal life illustration and see:

Participation rate: 100%

That sounds pretty straightforward.

You might think:

“Great. I participate in 100% of the S&P 500 return.”

Not necessarily.

That’s one of the easiest mistakes to make when reading an IUL illustration.

A participation rate is one part of an indexed-crediting formula.

It does not mean you own the index.

It does not mean you’re guaranteed the index’s total return.

And a 100% participation rate definitely does not mean the policy automatically earns whatever percentage the S&P 500 earns.

So let’s separate the numbers.

What Is an IUL Participation Rate?

A participation rate determines how much of an applicable positive index change is used in an indexed-crediting calculation, subject to the policy’s other crediting provisions.

Here’s a simplified example.

Suppose the applicable index increases:

8%.

If the applicable participation rate is 100%, the simplified calculation begins with:

8% × 100% = 8%.

If the participation rate is 80%:

8% × 80% = 6.4%.

If the participation rate is 50%:

8% × 50% = 4%.

That’s the basic concept.

But you can’t stop there.

Why Can’t You Stop at the Participation Rate?

Because an IUL indexed-crediting strategy can have other moving pieces.

Those can include:

• A cap
• A floor
• A spread
• A particular index
• A particular crediting method
• A defined crediting period
• Other contractual provisions

The participation rate needs to be understood inside the complete crediting formula.

A 100% Participation Rate Does Not Mean 100% of the S&P 500 Total Return

This is probably the most important point in this article.

Suppose someone tells you:

“This strategy has a 100% participation rate.”

That does not automatically mean:

“If the S&P 500 returns 15%, my IUL earns 15%.”

There may be a cap.

Dividends generally aren’t included in the indexed-crediting calculation simply because the strategy references the S&P 500.

A spread could apply.

The specific crediting method matters.

And the policy isn’t directly invested in the S&P 500 in the first place.

Let’s Add a 10% Cap

Suppose the strategy has:

100% participation rate

and:

10% cap.

Now suppose the applicable index change is 8%.

In a simplified example:

8% × 100% = 8%.

The result is below the 10% cap, so the simplified indexed-crediting result could remain 8%.

Now suppose the index rises 15%.

At a 100% participation rate:

15% × 100% = 15%.

But if the applicable cap is 10%, the simplified indexed-crediting result could be limited to 10%.

Participation Rate and Cap Are Not the Same Thing

This is where #56 and this article separate.

The participation rate determines how much of an applicable index change enters a crediting calculation.

The cap can place a maximum on the resulting indexed-crediting rate under the applicable method.

Both can matter.

But they do different jobs.

Here’s Another Example

Suppose the applicable index rises 12%.

Strategy A has:

100% participation rate and a 10% cap.

The simplified calculation starts at 12%, but the 10% cap could limit the result to:

10%.

Strategy B has:

75% participation rate and no cap in this simplified example.

The simplified calculation would be:

12% × 75% = 9%.

Same index movement.

Different crediting mechanics.

Different result.

This Is Why You Can’t Pick an IUL Based on One Number

Imagine seeing these two strategies:

Strategy A: 100% participation rate.

Strategy B: 150% participation rate.

Which one is better?

You don’t know yet.

You need the rest of the formula.

Can an IUL Have a Participation Rate Above 100%?

Some indexed-crediting strategies can use participation rates greater than 100%, subject to the specific policy and crediting method.

That can sound almost impossible the first time you see it.

You might think:

“How can I participate in more than 100% of the market?”

Remember, you’re not directly owning the market.

You’re looking at an insurance-contract crediting formula.

A participation rate above 100% can be one component of that formula.

It does not mean you own more than 100% of the S&P 500.

Example of a Participation Rate Above 100%

Suppose an applicable index change is 8%.

If a hypothetical crediting strategy applies a 125% participation rate before any other applicable crediting provisions:

8% × 125% = 10%.

That does not mean the S&P 500 returned 10%.

The index change in the example was still 8%.

The 10% is the result of applying the hypothetical participation-rate formula before considering any other applicable provisions.

What If the Index Goes Up 20%?

Now you really need to know the rest of the contract.

If a participation rate above 100% is paired with a cap, the cap can limit the ultimate indexed-crediting result.

If a spread applies, that can change the result.

If the strategy uses another crediting methodology, the calculation can work differently.

This is why “our participation rate is higher” is not enough information to evaluate a policy.

What Happens When the Index Is Negative?

The participation rate is generally most relevant to positive index movement under the applicable strategy.

If the index calculation is negative and the strategy has a 0% indexed-crediting floor, the applicable indexed-crediting result may be floored at 0%, subject to the actual policy terms.

For example, suppose the index result is:

-18%.

A 100% participation rate does not mean the policy receives -18% indexed crediting if an applicable 0% floor applies.

The floor is a separate part of the crediting formula.

But a 0% Floor Still Does Not Mean Your Cash Value Can’t Decline

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

Policy charges still exist.

Cost of insurance can still be deducted.

Policy-loan costs can still accrue.

Withdrawals can reduce policy values.

So:

0% indexed crediting does not equal a guarantee of 0% change in total policy value.

Participation Rate vs. Cap vs. Floor

Here’s the easiest way to keep the three concepts separate.

Participation rate: How much of an applicable index change is used in the crediting calculation.

Cap: A maximum that can limit the applicable indexed-crediting result.

Floor: A minimum that can limit how low the applicable indexed-crediting result can go.

That’s the basic framework.

Now Add a Spread

A spread is another possible crediting component.

A spread can reduce an applicable positive index result according to the policy’s crediting formula.

So even after you understand the participation rate, you still need to ask whether a spread applies.

We’ll deal with spreads in detail in Post #58.

Why Does the Participation Rate Matter for Retirement?

Because a small difference in indexed crediting can become a large difference over a long period.

If you’re 55 and planning to use the policy for retirement at 65 or 70, you’re not really concerned about one crediting period.

You’re concerned about what happens across the entire accumulation period and then through retirement.

Repeatedly lower indexed-crediting results can affect the policy values available to support future retirement distributions.

This Is Where Illustrations Can Fool People

Not because illustrations are automatically bad.

Because people can look at the final retirement-income number without understanding what assumptions helped create it.

Suppose an illustration projects:

$X per year of retirement income.

Your next question should not be:

“Is that guaranteed?”

You already know nonguaranteed illustrated values aren’t guarantees.

A better question is:

“What indexed-crediting assumptions helped produce that number?”

Then Ask About the Participation Rate

What participation rate is being used?

Is it current?

Is it guaranteed?

Can it change?

What contractual limits apply?

How does it interact with the cap?

How does it interact with a spread?

What happens to the retirement projection if future crediting economics are less favorable?

A Current Participation Rate Should Not Automatically Be Treated as Permanent

This is critical when you’re planning decades into the future.

Some indexed-crediting terms can be nonguaranteed and may change if the policy contract permits.

So if someone shows you a current participation rate and projects it mentally across the next 30 years, slow down.

Read the contract.

Understand what is guaranteed and what isn’t.

Now Let’s Connect This to the IUL JUMP Strategy

The IUL JUMP Strategy adds another layer through the Matching Indexed Participating Loan.

Under the strategy we’re discussing, the matching amount is created as a policy loan.

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

It is not free money.

It is not an employer match.

It is not a carrier contribution.

And it is not a tax credit.

It’s a policy loan with an associated cost.

Think of the Strategy as Two Buckets

Bucket 1: the client’s funded dollars.

Bucket 2: accumulated Matching Indexed Participating Loan dollars redeployed into the same policy.

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

That means the same applicable crediting mechanics can affect both buckets.

But Bucket 2 carries the policy-loan cost.

Why Does the Participation Rate Matter to the Loan-Funded Bucket?

Because the indexed-crediting result helps determine the economic relationship between the participating loan-funded value and the applicable loan cost.

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 indexed crediting exceeds the applicable loan cost, the modeled relationship can be favorable for that period.

If indexed crediting is below the loan cost, the relationship can become unfavorable.

Participation Rate Can Affect That Relationship

Let’s use a simplified example.

Suppose the applicable index rises 8%.

At a 100% participation rate, before any applicable cap, spread, or other crediting provision:

8% × 100% = 8%.

Against a 5% loan-cost assumption, the simplified difference is:

8% – 5% = 3 percentage points.

Now change the participation rate to 60%.

The simplified calculation becomes:

8% × 60% = 4.8%.

Against the same 5% loan-cost assumption:

4.8% – 5% = an unfavorable 0.2-percentage-point difference.

Same index movement.

Same loan-cost assumption.

Different participation rate.

Very different modeled loan economics.

That’s Why Positive Arbitrage Isn’t Guaranteed

There are multiple moving pieces.

The index can perform differently.

The participation rate can matter.

The cap can matter.

A spread can matter.

The loan rate can matter.

Policy charges matter.

So you should never hear “participating loan” and translate that into:

“Guaranteed positive spread.”

That’s not what it means.

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 a:

10% cap and 0% indexed-crediting floor.

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

Positive annual price changes above 10% were limited to 10%.

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

6.87%.

Where Is the Participation Rate in That Example?

The 6.87% figure is tied to the specific historical crediting assumptions used in that analysis.

You should not take that number and assume it applies to every IUL crediting strategy with a different participation rate, cap, spread, index, or crediting method.

Change the crediting mechanics and the historical calculation can change.

That’s exactly the point.

6.87% Is Not a Universal IUL Rate

It is not a guaranteed future crediting rate.

It is not the historical total return of the S&P 500.

It is not a promise of future policy performance.

It’s a historical capped-and-floored indexed-crediting result from the stated analysis.

Now Compare That With the Current 5% Loan Rate

Using the assumptions from that JUMP example:

6.87% historical average indexed-crediting result

minus:

5.00% current applicable policy-loan rate

equals:

1.87 percentage points of modeled positive spread.

That is part of the economic logic being evaluated.

But it is not guaranteed.

Why Could the Spread Change?

Because future indexed-crediting results can be different from the historical example.

Applicable crediting terms can change if permitted by the contract.

The applicable loan rate can change subject to the contract.

And the policy can experience charges that aren’t captured by simply subtracting one headline rate from another.

That’s why the full illustration matters.

What About the 8.74%, 11.61%, 14.48%, and 17.35% Numbers?

Under assumptions used in one JUMP model, the combination of the base indexed-crediting assumption and the modeled 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 are not participation rates.

They’re not IUL indexed-crediting rates.

They’re not S&P 500 returns.

And they’re not guaranteed policy returns.

Don’t Look at 17.35% and Think “That’s the Participation Rate”

It’s not.

Under the assumptions used in that JUMP model, the figure represents a modeled effective result attributed to the combination of the base indexed-crediting assumption and the modeled effect of successive Matching Indexed Participating Loans, before accounting for applicable policy charges and other factors.

Again, label the numbers correctly.

Here Are the Numbers You Need to Keep Separate

• Index change: what happened to the referenced index under the applicable measurement method
• Participation rate: how much of the applicable index change enters that part of the crediting calculation
• Cap: a possible maximum on the applicable indexed-crediting result
• Floor: a possible minimum on the applicable indexed-crediting result
• Indexed-crediting result: the result after the applicable crediting rules are applied
• Policy-loan rate: the applicable cost associated with the policy loan
• Modeled effective JUMP result: a broader strategy-modeling result, not an indexed-crediting rate

If those numbers get mixed together, the strategy starts sounding much better or much worse than it really is.

How Can a Participation Rate Affect Projected Retirement Income?

Think long term.

If the applicable participation rate or broader crediting economics produce lower indexed interest than originally projected, the policy can accumulate less value than the original nonguaranteed illustration showed.

That can affect the amount of policy value available to support retirement distributions.

When policy loans are involved, it can also affect the relationship between policy value and outstanding indebtedness.

This Matters More Once Retirement Distributions Begin

During accumulation, you may still be putting money into the policy.

In retirement, you may stop contributing and begin accessing policy values.

Now the policy may have:

• Policy charges
• Outstanding indebtedness
• Applicable loan costs
• Retirement distributions
• Actual indexed-crediting results that differ from the original projection

That’s why a participation-rate assumption isn’t just an obscure insurance detail.

It can eventually become part of your retirement-income math.

What If Your Retirement Illustration Assumes Strong Crediting?

Challenge it.

Don’t ask for a prettier illustration.

Ask for a tougher one.

Reduce the indexed-crediting assumption.

Stress-test less favorable crediting economics.

Use the current applicable 5% loan rate.

Then test the contractual maximum applicable 6% loan rate.

See what happens to projected policy values and retirement income.

Then Remove Future JUMPs

Future JUMPs require future underwriting and approval.

They’re not guaranteed when the original policy is issued.

So if your retirement projection assumes multiple future JUMPs, run another scenario where they don’t all happen.

Under the strategy mechanics we’re discussing, a missed future JUMP can pause progression rather than automatically erasing prior successful JUMPs.

But the retirement-income projection needs to be updated.

Now You Have a Much Better Test

Less favorable indexed crediting.

Higher applicable loan cost.

Fewer future JUMPs.

Longer retirement.

Same retirement-income goal.

Now ask:

“Does the strategy still work well enough for me?”

What About the Up-to-300% Retirement-Income Result?

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 big number.

Which means it deserves more questions, not fewer.

Ask What Participation-Rate Assumptions Are Behind the Projection

If an indexed-crediting strategy uses a participation rate as part of its formula, what rate is being assumed?

Can it change?

What other crediting provisions apply?

What happens to the projected retirement income if future crediting is weaker?

What happens if the applicable loan rate is 6%?

What happens if future JUMPs stop?

Then rerun the comparison.

The 300% Isn’t a Participation-Rate Claim

It doesn’t mean the IUL has a 300% participation rate.

It doesn’t mean the policy earns 300% of the S&P 500.

It doesn’t mean the policy generates 300% more investment return.

The up-to-approximately-300% figure refers to projected retirement income in certain modeled comparisons.

Those comparisons can be affected by:

• Contributions
• Employer contributions where applicable
• Market-return assumptions
• Taxes
• Investment expenses
• Indexed-crediting assumptions
• Participation rates
• Caps
• Spreads
• Policy charges
• Policy-loan costs
• Matching Indexed Participating Loan mechanics
• Future JUMPs
• Distribution timing
• Longevity

That’s why the number needs to be modeled, not marketed.

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, don’t assume the entire difference comes from one feature.

If the two policy designs have different participation rates, caps, spreads, loan mechanics, charges, or funding assumptions, those differences need to be visible.

Otherwise you’re not comparing the strategies fairly.

A Higher Participation Rate Is Not Automatically a Better IUL

This is one of the easiest traps to fall into.

You see:

150% participation rate

next to:

100% participation rate

and assume 150% wins.

Not so fast.

What cap applies?

Is there a spread?

What index is being used?

What crediting method is being used?

What policy charges apply?

What loan provisions apply?

What is guaranteed?

What can change?

The bigger participation-rate number can be meaningless without the rest of the contract.

And a Lower Participation Rate Isn’t Automatically Bad

The same principle works in reverse.

A strategy with a lower participation rate could have other crediting characteristics that change the outcome.

You have to run the actual formula.

That’s why shopping for an IUL based on the biggest participation rate is a bad shortcut.

Here’s What I Would Ask Before Buying

1. What participation rate applies to the indexed-crediting strategy?
2. What exactly does that participation rate apply to?
3. Is the participation rate guaranteed?
4. Can it change?
5. What contractual limits apply to changes?
6. What cap applies?
7. What floor applies?
8. Does a spread apply?
9. What index is being referenced?
10. What crediting method is being used?
11. Are dividends included in the indexed-crediting calculation?
12. What happens if the index rises above the cap?
13. What happens if the index is negative?
14. What indexed-crediting assumption is used in the illustration?
15. How would weaker crediting affect projected cash value?
16. How would weaker crediting affect policy-loan economics?
17. How would it affect projected retirement income?
18. How would it affect the projected net death benefit?
19. What happens if the applicable loan rate reaches 6%?
20. What happens if future JUMPs stop?

The Real Question Isn’t “What’s the Participation Rate?”

The better question is:

“How does this participation rate interact with everything else in the policy?”

That’s what ultimately matters.

And That’s Especially True When You’re Planning for Retirement

If you’re 30, a percentage on an illustration can feel abstract.

At 55 or 60, it doesn’t.

You’re thinking about when the paycheck stops.

You’re thinking about how much money you’ll actually have available each month.

You’re thinking about whether the plan can survive into your 80s and 90s.

You’re thinking:

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

Because You Don’t Want to Find Out at 75 That You Misunderstood the Policy at 55

That’s the mistake people are really trying to avoid.

You want to understand what you’re buying while you still have choices.

You want to remain independent.

You don’t want to call your children later because the retirement-income projection didn’t hold up.

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

“We should be able to handle this ourselves.”

That’s why I would rather explain the participation rate now than hide it behind a giant retirement-income number.

The Bottom Line

An IUL participation rate determines how much of an applicable positive index change is used in part of the indexed-crediting calculation, subject to the policy’s other crediting provisions.

A 100% participation rate does not automatically mean you receive 100% of the S&P 500’s total return.

A participation rate above 100% does not mean you own more than 100% of the market.

And the participation rate cannot be evaluated intelligently without also looking at the cap, floor, spread where applicable, crediting method, policy charges, and contractual terms.

How We Evaluate Participation Rates at FPP Financial

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

I don’t want to tell you:

“This policy has a high participation rate, so it’s better.”

That doesn’t prove anything.

I want to see the whole formula.

We’ll look at the participation rate.

We’ll look at the cap.

We’ll look at the floor.

We’ll look at any applicable spread.

We’ll look at the indexed-crediting assumption.

We’ll look at policy charges.

We’ll look at the Matching Indexed Participating Loan mechanics.

We’ll look at the current applicable 5% loan rate.

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

We’ll look at future JUMP assumptions.

We’ll look at retirement distributions.

Then we’ll compare the projected retirement income against the other strategies you’re actually considering.

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

Want to See What the Participation Rate Actually Does to the Retirement Math?

Don’t stop at the number printed next to “participation rate.”

Make us show you what it does.

Change the index result.

Change the indexed-crediting assumption.

Stress-test the policy-loan rate.

Remove future JUMPs.

Then look at the projected retirement income again.

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.

But don’t let the size of that number stop the questions.

It should create more questions.

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

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

Show me exactly where the difference comes from.

Let the math do the talking.

Schedule Your Tax-Free Retirement Strategy Meeting

Explore More

• How Does an IUL Cap Affect Indexed Interest?
• What Happens If IUL Caps or Participation Rates Go Down?
• 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, 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, or direct investment in a market index.

An IUL participation rate is one component that may be used in an applicable indexed-crediting methodology. The exact order and manner in which participation rates, caps, spreads, floors, and other provisions are applied are controlled by the applicable insurance contract and crediting method. Simplified examples in this article are intended to explain concepts and should not be interpreted as the formula for any particular policy.

A 100% participation rate does not guarantee receipt of 100% of a market index’s total return. A participation rate above 100% does not mean the policyholder owns more than 100% of an index or receives more than 100% of the underlying securities’ investment performance. Indexed universal life insurance does not directly invest policy cash value in the S&P 500 or another market index.

Caps, participation rates, spreads, bonuses, crediting methods, and other nonguaranteed policy elements may change if permitted under the insurance contract. Current values or terms should not be assumed to remain unchanged for the life of a policy. Policy-specific guarantees and contractual limits should be verified using current approved policy information and the actual insurance contract.

An indexed-crediting strategy that references the S&P 500 generally does not credit S&P 500 dividends as though the policy directly owned the underlying stocks. Direct investments and investment funds have different market exposure and can handle dividends, expenses, taxes, and distributions differently.

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. Policy charges, cost of insurance, loan costs, withdrawals, and other policy mechanics continue to apply.

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 and should not be interpreted as a guaranteed future indexed-crediting rate, policy return, or the historical total return of the S&P 500.

The 6.87% historical result is tied to the specific assumptions and methodology used in the referenced analysis. A different participation rate, cap, floor, spread, index, crediting method, or historical period can produce materially different results.

Life insurance illustrations contain assumptions and may include both guaranteed and nonguaranteed elements. Nonguaranteed values, indexed-crediting assumptions, participation rates, caps, policy values, death benefits, and retirement-income projections are not promises of future results. Actual policy performance can differ materially from illustrated 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.

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.

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 guaranteed loan provisions should be verified against current approved policy information and the actual insurance contract.

Positive arbitrage is not guaranteed. Periods in which indexed crediting is below the applicable loan cost can produce unfavorable loan economics. Changes in participation rates, caps, spreads, crediting methods, or other indexed-crediting terms can affect indexed-crediting results and therefore can affect the modeled relationship between indexed crediting and policy-loan costs.

The modeled effective JUMP results of approximately 8.74%, 11.61%, 14.48%, and 17.35% are not S&P 500 returns, participation rates, indexed-crediting rates, or guaranteed policy returns. They are modeled effective results under the 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, 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 and carrier 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. A policy that lapses or is surrendered with gain and outstanding indebtedness may create taxable 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 and should not be interpreted as a 300% participation rate, 300% more investment return, S&P 500 performance, or indexed crediting. Results can change materially with contributions, employer contributions, market-return assumptions, dividends, taxes, investment fees, participation rates, caps, spreads, indexed-crediting assumptions, policy charges, loan costs, future JUMPs, distribution timing, and longevity.

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. Differences in participation rates, caps, spreads, crediting methods, loan mechanics, policy charges, funding, future JUMPs, and retirement distributions can materially alter the comparison.

Comparisons between an IUL and a 401(k), IRA, brokerage account, index fund, traditional IUL, or another retirement strategy should use clearly stated assumptions appropriate to each strategy. Direct investments and retirement accounts have different market exposure, costs, tax characteristics, and distribution mechanics from life insurance.

Policy-specific guarantees, nonguaranteed elements, underwriting requirements, death-benefit options, MEC limits, loan provisions, loan rates, caps, participation rates, spreads, crediting methods, policy charges, surrender provisions, lapse provisions, 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 or implementing any retirement-income strategy discussed here.