How Do IUL Policy Loans Affect Cash Value Over 20 or 30 Years?
Taking an IUL policy loan for one year is one thing.
Carrying policy loans for 20 or 30 years is something else entirely.
That’s where I want to see the math.
Because if an IUL is being used for retirement income, the real question isn’t:
“Can I borrow from my policy?”
Of course policy loans may be available under the contract when sufficient policy value exists.
The better question is:
“What happens if those loans stay outstanding for the rest of my retirement?”
What happens to cash value?
What happens to the loan position?
What happens to the death benefit?
And what happens if you’re still taking money at age 85, 90 or 95?
Policy Loans and Cash Value Can Exist at the Same Time
One of the first things people need to understand is that taking an IUL policy loan does not necessarily mean the policy’s entire cash value simply disappears dollar for dollar.
The actual treatment is controlled by the insurance contract.
With certain participating-loan structures, value associated with the outstanding loan may continue participating in an applicable indexed-crediting strategy according to the policy’s provisions.
That’s one reason policy loans can be used as part of a retirement-income design.
But there’s another side to it.
The loan creates policy indebtedness.
So You Need to Watch Two Numbers
Don’t look only at cash value.
Don’t look only at the outstanding loan.
Watch both.
Over a long retirement, you can potentially have policy value that continues to receive applicable crediting while policy indebtedness and associated loan costs also remain part of the policy.
The relationship between those numbers is what matters.
A Large Cash Value Doesn’t Automatically Mean the Loan Is Harmless
Imagine someone says:
“My policy has $800,000 of cash value, so I’m fine.”
Maybe.
But how much outstanding policy indebtedness exists?
What is the applicable loan rate?
What charges are being deducted?
How much retirement income is coming out?
How has the policy actually been crediting?
How many more years does the policy need to support the strategy?
The $800,000 number by itself doesn’t answer those questions.
The Same Is True of a Large Loan Balance
Suppose someone sees a substantial outstanding policy loan and immediately thinks:
“This policy is in trouble.”
That conclusion can also be premature.
You need to see the loan in relation to the policy values, death benefit, charges, crediting assumptions, actual performance, distributions and contract provisions.
A loan balance by itself isn’t enough information.
Why Does 20 or 30 Years Change the Analysis?
Time magnifies small differences.
A one-year difference between indexed crediting and loan cost may not look dramatic.
But retirement can last decades.
During those decades:
- Policy loans may remain outstanding
- Additional retirement loans may be taken
- Applicable loan charges may continue
- Indexed-crediting results can vary
- Policy charges continue
- Cost of insurance can change as the insured ages
- Net death benefit can be affected by indebtedness
That’s why long-term loan modeling matters.
Think About a 65-Year-Old Retiree
If retirement starts at 65 and the insured lives to 95, that’s:
30 years.
A retirement-income strategy using policy loans may need to function across that entire period.
That’s a much tougher test than showing someone five years of retirement distributions on an illustration.
What Can Happen to Cash Value During Those 30 Years?
Cash value can move based on several interacting factors.
Applicable indexed crediting can add value.
Policy charges can reduce value.
Withdrawals can reduce value.
Policy loans and their associated charges affect the policy economics.
Retirement distributions can create additional pressure.
And the sequence of those events matters.
The Cash Value Doesn’t Move in a Straight Line
This is one reason I don’t like oversimplified IUL illustrations.
Real life isn’t:
6%, 6%, 6%, 6%, 6% forever.
Applicable indexed-crediting results can vary from period to period.
You might have strong periods.
You might have mediocre periods.
You might have 0% indexed-crediting periods.
Meanwhile, the policy still has expenses and the loan still has an applicable cost.
What Happens When Crediting Beats the Loan Cost?
Suppose the applicable indexed-crediting result is:
8%.
And the applicable policy-loan cost is:
5%.
The simplified relationship is:
8% – 5% = a favorable 3-percentage-point difference.
That’s positive arbitrage.
With participating-loan mechanics, that favorable relationship can contribute to stronger modeled long-term economics.
But it isn’t guaranteed.
What Happens When Crediting Falls Below the Loan Cost?
Now suppose indexed crediting is:
3%.
With the same 5% applicable loan cost:
3% – 5% = an unfavorable 2-percentage-point difference.
That’s negative arbitrage.
Over a 20- or 30-year period, you’re likely much more interested in how the policy handles both types of periods than in one isolated year’s result.
And What Happens During a 0% Crediting Period?
Using the same simplified comparison:
0% indexed crediting – 5% loan cost = an unfavorable 5-percentage-point relationship.
The 0% indexed-crediting floor does not erase the policy-loan cost.
It also doesn’t erase cost-of-insurance charges, administrative expenses or other applicable policy charges.
That’s why a 0% floor is not the same thing as a guarantee that cash value cannot decline.
One Weak Period Isn’t the Biggest Concern
I’m more interested in what happens when several weak periods occur while substantial loans are outstanding.
Especially after retirement begins.
Imagine a hypothetical sequence like:
7%, 0%, 3%, 0%, 8%, 2%, 0%.
That’s not a prediction.
It’s a stress test.
Now add ongoing retirement distributions.
Now the long-term loan position becomes much more interesting.
Sequence Matters When You’re Taking Money Out
A weak crediting period at age 45 may land while you’re still contributing money.
A weak period at age 78 may land while you’re taking retirement income and carrying substantial outstanding indebtedness.
Same crediting result.
Very different situation.
This Is Why Long-Term Policy Loans Need More Than an Average Return Assumption
An average can be useful for modeling.
But it can hide the path you took to get there.
If a retirement strategy needs loans to remain manageable for 30 years, I want to see what happens when bad periods show up at bad times.
Now Bring in the Matching Indexed Participating Loan
The IUL JUMP Strategy we’re discussing uses a Matching Indexed Participating Loan.
The matching amount is created as policy-loan activity.
The proceeds are redeployed into the same policy as additional funding.
So the borrowed dollars aren’t simply being taken out and spent.
They’re being used inside the policy strategy.
Why Does That Matter Over 20 or 30 Years?
Because under the strategy mechanics being modeled, the loan-funded value can continue participating in the applicable indexed-crediting strategy while the policy carries the associated indebtedness and loan cost.
That creates the potential for favorable loan economics.
It also creates exposure to unfavorable loan economics.
Over decades, both matter.
The JUMP Strategy Starts Building Loan Exposure Before Retirement
Consider the example where the client contributes:
$10,000 per year.
The example progression is:
| Policy Year | Client Contribution | Matching Indexed Participating Loan | Total Annual Funding Shown |
|---|---|---|---|
| 1 | $10,000 | $0 | $10,000 |
| 2 | $10,000 | $0 | $10,000 |
| 3 | $10,000 | $10,000 | $20,000 |
| 4 | $10,000 | $10,000 | $20,000 |
| 5 | $10,000 | $20,000 | $30,000 |
| 6 | $10,000 | $20,000 | $30,000 |
| 7 | $10,000 | $30,000 | $40,000 |
| 8 | $10,000 | $30,000 | $40,000 |
| 9 | $10,000 | $40,000 | $50,000 |
| 10 | $10,000 | $40,000 | $50,000 |
| 11 | $10,000 | $50,000 | $60,000 |
The Loans Don’t Reset at Each JUMP
This is critical to understanding the long-term picture.
The next JUMP does not simply pay off the previous loan.
Later loan activity accumulates on top of prior outstanding loan activity under the strategy mechanics we’re discussing.
So by the time retirement eventually begins, the policy-loan position can already be an important part of the strategy.
That Makes the 20- or 30-Year Projection Even More Important
You aren’t necessarily starting retirement with a completely untouched policy and taking your first loan at 65.
Under the JUMP Strategy, loan activity can be part of the accumulation design.
Then retirement distributions can add another layer.
That’s why the complete loan trajectory matters.
What Is the Applicable Loan Rate?
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%.
For a 20- or 30-year analysis, I want both numbers modeled.
Why Is the 6% Stress Test So Important Over Decades?
Because one percentage point can matter when substantial indebtedness remains outstanding for many years.
Don’t build a decades-long retirement projection around the assumption that today’s applicable loan rate never changes when the contract permits a higher maximum.
Show me the current 5%.
Then show me 6%.
Now Add Lower Crediting to the 6% Loan Rate
Suppose indexed crediting is:
3%.
And the loan rate is:
6%.
The simplified relationship is:
3% – 6% = an unfavorable 3-percentage-point difference.
At 0% indexed crediting:
0% – 6% = an unfavorable 6-percentage-point difference.
Now run several of those periods across a 30-year retirement.
That’s a stress test worth seeing.
What About the Historical 6.87% Example?
One historical analysis used in our JUMP modeling examined 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 index price changes were replaced by 0% for purposes of the historical indexed-crediting calculation.
Positive annual changes above 10% were limited to 10%.
The resulting annual capped-and-floored figures averaged approximately:
6.87%.
At the Current 5% Loan Rate, the Simplified Spread Is 1.87 Percentage Points
The math is:
6.87% – 5.00% = 1.87 percentage points.
That’s the modeled positive-arbitrage example.
But a 20- or 30-year retirement should not assume that 1.87-percentage-point favorable relationship occurs every year.
It won’t necessarily.
6.87% Is an Average, Not an Annual Promise
You don’t experience an average every year.
Actual indexed-crediting results under the policy can vary.
Some periods may exceed the loan cost.
Some may fall below it.
That’s why long-term cash-value modeling needs a range of scenarios.
What About the Modeled 8.74%, 11.61%, 14.48% and 17.35% 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 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.
And they should not be projected blindly for the next 30 years.
Long-Term Policy Loans Make Stress Testing More Important, Not Less
The longer the strategy runs, the more chances reality has to disagree with the original illustration.
Loan rates can be different.
Crediting can be different.
Retirement can begin at a different age.
You may need more money.
You may live longer.
Future JUMPs may not happen.
The original projection should not be treated like a contract promising the future.
What Happens When Retirement Distributions Begin?
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 not guaranteed.
It is a modeled distribution level that needs to be evaluated against actual policy performance and policy durability.
A 12% Distribution Is a Very Different Question Over 5 Years Versus 30 Years
If someone shows you five years of projected retirement income, that’s not enough if you’re 65 and planning for age 95.
I want to see the entire retirement period.
What happens after 10 years?
After 20?
After 30?
How much policy value remains?
How much indebtedness exists?
What’s the net death benefit?
Is the policy still projected to remain in force?
What If the Policy Is Doing Better Than Expected?
That’s good.
But don’t automatically increase retirement distributions because of a few strong years.
First rerun the long-term projection.
See what higher distributions do to the loan trajectory and policy durability.
A strong year doesn’t eliminate longevity risk.
What If the Policy Is Doing Worse Than Expected?
Then don’t wait 15 years to notice.
Update the analysis.
Potential adjustments might include changing future distributions, modifying how loans are handled, adding outside funding where appropriate and permitted, or considering other policy-management options available under the contract.
The actual course of action should be based on the real policy and the owner’s circumstances.
Can Long-Term Loans Reduce the Death Benefit?
Outstanding policy indebtedness generally reduces the net death benefit payable under the insurance contract.
So if you’re using substantial policy loans throughout retirement, the gross death-benefit number is not necessarily what your beneficiaries ultimately receive.
Look at the projected net death benefit.
This Creates a Retirement-Income vs. Legacy Tradeoff
Someone may want to maximize retirement income.
Someone else may care more about leaving a larger net death benefit.
Those are not always the same objective.
Taking more from the policy can potentially improve lifestyle today while reducing what remains later.
That’s a real planning decision.
Can Long-Term Policy Loans Increase Lapse Risk?
Yes, substantial outstanding indebtedness can contribute to lapse risk when combined with insufficient policy values, policy charges, weak crediting, large distributions and other factors.
That doesn’t mean a large policy loan automatically causes a lapse.
It means the loan position has to be monitored relative to the rest of the policy.
Why Is a Lapse With Outstanding Loans Such a Big Deal?
Because if a policy with gain and outstanding indebtedness lapses or is surrendered, taxable income can potentially result under applicable tax rules.
That’s one reason I don’t like the phrase:
“Just borrow from it tax-free forever.”
That leaves out too much.
The Better Phrase Is “Potentially Without Current Income Taxation”
Policy values from a properly structured and maintained non-MEC 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 policy status matters.
MEC status matters.
Lapse matters.
Surrender matters.
Outstanding indebtedness matters.
That’s the complete conversation.
What Happens If You Live Longer Than Expected?
This is one of the most important long-term loan questions.
Suppose your original retirement projection assumed a shorter life expectancy.
Then you reach 90.
Then 95.
You’re still alive.
You’re still spending money.
The policy still needs to function.
That’s why I want longevity stress-tested before retirement.
What Happens If Future JUMPs Stop?
The example JUMP progression includes planned JUMPs in Years:
3, 5, 7, 9 and 11.
Those future JUMPs require future underwriting and approval.
They are not guaranteed when the original policy is issued.
If a future JUMP isn’t approved, the progression can pause at the previously achieved matching-loan level under the mechanics we’re discussing rather than automatically resetting to the beginning.
But the long-term projection should be updated.
Why Does That Matter to a 30-Year Loan Projection?
Because the original retirement-income model may have assumed later JUMPs that never occur.
If those additional JUMPs were part of the projected accumulation and retirement-income result, removing them can change the long-term cash-value and loan trajectory.
Don’t keep using an obsolete projection.
Now Put the Up-to-300% Retirement-Income Comparison Through a 30-Year 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.
If you’re going to show someone a result that large, don’t stop the analysis at retirement.
Show what happens throughout retirement.
Show Me the Policy at Age 75, 85 and 95
How much projected retirement income has been taken?
How much policy value remains?
How much outstanding indebtedness exists?
What’s the projected net death benefit?
Is the policy still projected to remain in force?
What loan rate was assumed?
What crediting assumption was used?
That’s how you evaluate the 300% number.
Don’t Just Compare Income. Compare Durability.
A strategy that shows huge income for a short period and then creates an unacceptable policy problem isn’t the same as a strategy designed to support a long retirement.
So when we compare the JUMP Strategy with a 401(k), IRA or another retirement approach, the question isn’t simply:
“Which one pays more in Year 1?”
It’s:
“What happens over the entire retirement?”
The 300% Isn’t the Sales Pitch. It’s the Question.
If the model shows up to approximately 300% more projected retirement income in a particular comparison, ask:
How long does that income last?
What happens to the policy loans?
What happens at 5% loan cost?
What happens at 6%?
What happens after several 0% crediting periods?
What happens if I live to 95?
What happens if future JUMPs stop?
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.
If long-term policy-loan mechanics contribute to that difference, show them.
Don’t compare two IULs only at age 65.
Compare them throughout retirement.
Show the cash value.
Show the indebtedness.
Show the net death benefit.
Show the projected retirement income.
Show the policy durability.
What Should You Review on a Long-Term IUL Loan Projection?
- Cash value at retirement
- Outstanding policy indebtedness at retirement
- Projected annual retirement distributions
- Current applicable loan rate
- Contractual maximum applicable loan rate
- Indexed-crediting assumptions
- 0% crediting stress periods
- Policy charges
- Cost-of-insurance charges over time
- Loan position after 10 years
- Loan position after 20 years
- Loan position after 30 years
- Cash value after 10, 20 and 30 years
- Projected net death benefit
- Policy lapse sensitivity
- Effect of no future JUMPs
- Effect of earlier retirement
- Effect of higher distributions
- Longevity to age 95 or longer
Then Ask for the One Number Most People Forget
“What is my projected net policy position after decades of loans?”
Not just the gross cash value.
Not just the loan balance.
Not just the death benefit.
Show me how the entire policy is holding together.
Because This Isn’t Really About a Loan
If you’re 58 or 62 and planning retirement, you’re not fascinated by policy-loan accounting.
You care about something much more basic.
“Will this still work when I’m old?”
That’s the real question.
You don’t want a strategy that looks incredible at 65 and becomes a problem at 88.
The Fear Is Discovering the Problem Too Late
You have time to make adjustments now.
At 85, you may not want to redesign your retirement strategy.
You don’t want to look back and think:
“What if we mess this up and regret it?”
That’s why the 20- and 30-year numbers matter.
You Want the Strategy to Protect Your Independence
The goal isn’t just more projected retirement income.
It’s being able to make your own decisions later in life.
It’s not putting your children in the position of trying to fix something they never understood.
“I don’t want to ask my kids for help.”
“We should be able to handle this ourselves.”
Then don’t evaluate a decades-long policy with a five-year mindset.
The Bottom Line
IUL policy loans can remain part of a policy for 20 or 30 years.
During that time, applicable policy value may continue receiving crediting according to the policy’s provisions while outstanding indebtedness and loan costs remain part of the economics.
Policy charges continue.
Retirement distributions may continue.
Crediting varies.
Loan rates can matter.
Net death benefit can be reduced by outstanding indebtedness.
And excessive policy pressure can increase lapse risk.
So don’t ask only:
“How much can I borrow?”
Ask:
“Show me what this policy looks like after 20 or 30 years of borrowing.”
How We Test Long-Term Policy Loans at FPP Financial
At FPP Financial, we use our Retirement Math Method™.
I want to see the entire retirement, not just the first few years.
We’ll look at the Matching Indexed Participating Loan mechanics.
We’ll model the current applicable 5% loan rate.
We’ll stress-test the contractual maximum 6% loan rate.
We’ll lower the indexed-crediting assumption.
We’ll test multiple 0% crediting periods.
We’ll keep applicable policy charges in the model.
We’ll test future JUMPs.
We’ll test no future JUMPs.
We’ll test retirement distributions.
We’ll test earlier retirement.
We’ll test longevity to age 95 or longer.
And we’ll watch the policy values, outstanding indebtedness, net death benefit and projected retirement income throughout the process.
I don’t try to sell you on the strategy. I make the strategy prove itself with the math.
Want to See What the Policy Looks Like 20 or 30 Years Into Retirement?
That’s the projection I would want before making the decision.
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 a large retirement-income number means very little if you haven’t looked at what happens to the policy loans over the full retirement period.
The number isn’t the reason to buy it. The assumptions behind the number are what you need to understand.
Don’t just believe the 300% number. Make the strategy prove where the difference comes from with the math.
The 300% isn’t the sales pitch. It’s the question.
Show me exactly where the difference comes from.
Let the math do the talking.
Schedule Your Tax-Free Retirement Strategy Meeting
Explore More
- Should You Pay IUL Loan Interest Out of Pocket?
- Fixed vs. Participating IUL Loans: What’s the Difference?
- What Happens to IUL Policy Loans When You Die?
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.
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 20, 30, or any other number of years. Policy durability should be evaluated using actual policy values, indebtedness, charges, crediting assumptions, loan provisions, distribution timing, and longevity.
Long-term policy-loan projections are highly sensitive to actual policy performance, loan rates, policy charges, outstanding indebtedness, retirement distributions, timing and longevity. An illustration showing a policy remaining in force through a particular age does not guarantee that actual future performance will produce the same result.
Policy loans generally can reduce policy values and death benefits and increase lapse risk. Outstanding policy indebtedness generally reduces the net death benefit payable under the insurance contract. A policy that lapses or is surrendered with gain and outstanding indebtedness may create taxable income under applicable tax rules.
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. Long-term policy-loan performance, 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 long-term policy indebtedness can materially alter the comparison.
Comparisons between an IUL and a 401(k), IRA, traditional IUL, or another retirement strategy should use clearly stated assumptions appropriate to each strategy and should evaluate the full retirement period rather than a selected short-term window.
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.
