How Does Positive Arbitrage Work With an IUL Policy Loan?

There’s a phrase that gets thrown around in IUL conversations that sounds much more complicated than it really is:

Positive arbitrage.

Someone might tell you:

“We’re borrowing at 5% and earning more than 5%, so we’re making money on the spread.”

That explanation isn’t completely useless.

But it’s incomplete.

Because the second you hear it, you should ask:

“What exactly is earning the indexed credit, what exactly is being charged the loan cost, and what happens when the crediting result is less than the loan rate?”

Now we’re talking about the actual mechanics.

What Is Positive Arbitrage in an IUL?

At its simplest, positive arbitrage describes a favorable economic relationship where the applicable credited result associated with policy value is greater than the applicable cost of the policy loan.

For example, imagine a simplified period where:

Indexed crediting = 7%

and:

Policy-loan cost = 5%

The simplified difference is:

7% – 5% = 2 percentage points.

That favorable difference is what people are generally talking about when they use the term positive arbitrage.

But Don’t Call That 2% a Guaranteed Profit

That’s where the explanation can go off the rails.

The 2-percentage-point difference in that simplified example is not automatically:

• A guaranteed return
• A guaranteed profit
• A net policy return
• A guaranteed increase in cash value
• A return after every policy charge

It’s simply a comparison between two numbers.

The credited result.

And the applicable loan cost.

The entire policy has more going on than those two numbers.

Why Can Borrowed Money Still Participate in Indexed Crediting?

This is where the type of policy loan matters.

With the Matching Indexed Participating Loan structure used in the IUL JUMP Strategy we’re discussing, the loan-funded value is modeled as continuing to participate in the applicable indexed-crediting strategy.

That’s an important distinction.

The money associated with the loan isn’t simply treated as though it disappeared from the indexed-crediting mechanics.

Under the strategy, the Matching Indexed Participating Loan proceeds are redeployed into the same policy as additional funding.

Those dollars can then participate in the applicable indexed-crediting strategy while the policy also carries the associated loan indebtedness and loan cost.

Think About It as Two Buckets

This is the simplest way I know to explain it.

Bucket 1: Your own contribution.

Bucket 2: The accumulated Matching Indexed Participating Loan funding.

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

The example uses:

A 10% cap

and:

A 0% indexed-crediting floor.

But Bucket 2 has something Bucket 1 doesn’t.

Bucket 2 carries the applicable policy-loan cost.

That’s Where the Arbitrage Question Comes From

If the indexed-crediting result associated with that participating value is higher than the applicable loan cost, the modeled relationship can be favorable.

If indexed crediting is lower than the loan cost, the relationship can be unfavorable.

That’s it.

There’s no magic hidden inside the word “arbitrage.”

Let’s Use a Simple $10,000 Example

Suppose, purely for illustration, $10,000 of value is associated with the participating-loan side of the strategy.

Now imagine an applicable indexed-crediting result of:

8%.

And imagine the applicable policy-loan rate is:

5%.

The simplified percentage relationship is:

8% – 5% = 3 percentage points.

That’s a favorable spread.

But that does not mean you simply earned a guaranteed $300 net profit after every policy cost.

The actual policy mechanics, timing, loan accounting, policy charges, and credited amounts matter.

The example is showing the concept, not replacing an actual illustration.

Now Change One Number

Suppose indexed crediting is:

4%.

The loan rate is still:

5%.

Now the simplified relationship becomes:

4% – 5% = an unfavorable 1-percentage-point difference.

That’s no longer positive arbitrage.

And If Indexed Crediting Is 0%?

Now the simplified relationship becomes:

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

The 0% indexed-crediting floor did its job on the applicable indexed-crediting calculation.

But it didn’t eliminate the policy-loan cost.

That’s a critical distinction.

A 0% Floor Does Not Create a 0% Loan Cost

This sounds obvious when you say it out loud.

But it’s easy to miss when someone is presenting an illustration quickly.

The indexed-crediting floor and the policy-loan rate are separate mechanics.

One doesn’t cancel the other.

What Is the Current Loan Rate in the JUMP Structure?

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%.

Those two numbers need to stay separate.

Five percent is the current applicable rate.

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

I would not build a retirement projection assuming the current 5% rate can never change.

Stress-Test the 6% Rate Too

If the strategy only looks attractive at a 5% loan rate, I want to know what happens at 6%.

That’s especially important when the policy may be expected to operate for decades.

You’re not buying this for next Thursday.

You may still have the policy when you’re 85 or 95.

Now Let’s Use 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.

That’s important because the indexed strategy isn’t a direct investment in the S&P 500 and does not receive the index’s dividends as though you owned the underlying stocks.

For that historical analysis, annual S&P 500 price changes were subjected to the example strategy’s:

10% cap

and:

0% indexed-crediting floor.

How Was the 6.87% Calculated?

For purposes of that historical analysis:

Negative annual S&P 500 price changes were replaced with:

0%.

Positive annual price changes above the cap were limited to:

10%.

Annual positive price changes between 0% and 10% were reflected within that range under the simplified analysis.

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

6.87%.

6.87% Is Not the Historical Return of the S&P 500

That’s worth repeating.

The 6.87% figure is not:

• The S&P 500’s total return
• A guaranteed IUL return
• A future indexed-crediting promise
• A net policy return after charges

It is the historical average indexed-crediting result produced by applying the stated 10% cap and 0% floor to the annual S&P 500 price changes from 2006 through 2020, excluding dividends, in that analysis.

Now Compare 6.87% With the Current 5% Loan Rate

This is where the positive-arbitrage example comes from.

The simplified calculation is:

6.87% – 5.00% = 1.87 percentage points.

Under those assumptions, that’s a modeled favorable spread.

Is the 1.87% Guaranteed?

No.

The historical 6.87% result can change when you use a different period, different indexed-crediting terms, or actual future results.

The current 5% loan rate can also change within the applicable contractual provisions.

So the 1.87-percentage-point relationship is a modeling result.

It is not a contractual promise.

And 1.87% Is Not the Policy’s Net Return

Don’t take:

6.87% – 5% = 1.87%

and say:

“That’s what I earn after every expense.”

No.

The policy can still have:

• Cost-of-insurance charges
• Administrative charges
• Premium-related charges
• Rider charges where applicable
• Other contractual policy charges

The positive-arbitrage calculation isolates the relationship between the applicable indexed-crediting result and the applicable loan cost.

So Why Is 1.87% Such a Big Deal in the JUMP Strategy?

Because the strategy isn’t modeled around one participating-loan event.

It’s built around a progression of planned JUMPs.

As additional Matching Indexed Participating Loans are created and redeployed into the policy, more loan-funded value can potentially participate in the indexed-crediting strategy while carrying the applicable loan cost.

That’s where the modeled compounding effect becomes interesting.

Here’s the Example JUMP Schedule

Suppose the client contributes:

$10,000 per year.

The example progression is:

• Year 1: $10,000 client contribution + $0 matching loan = $10,000 total annual funding shown
• Year 2: $10,000 client contribution + $0 matching loan = $10,000 total annual funding shown
• Year 3: $10,000 client contribution + $10,000 Matching Indexed Participating Loan = $20,000 total annual funding shown
• Year 4: $10,000 client contribution + $10,000 matching-loan level = $20,000 total annual funding shown
• Year 5: $10,000 client contribution + $20,000 matching loan = $30,000 total annual funding shown
• Year 6: $10,000 client contribution + $20,000 matching-loan level = $30,000 total annual funding shown
• Year 7: $10,000 client contribution + $30,000 matching loan = $40,000 total annual funding shown
• Year 8: $10,000 client contribution + $30,000 matching-loan level = $40,000 total annual funding shown
• Year 9: $10,000 client contribution + $40,000 matching loan = $50,000 total annual funding shown
• Year 10: $10,000 client contribution + $40,000 matching-loan level = $50,000 total annual funding shown
• Year 11: $10,000 client contribution + $50,000 matching loan = $60,000 total annual funding shown

The Client Is Not Writing a $60,000 Check in Year 11

This is one of the most important parts of the example.

The client’s annual out-of-pocket contribution remains:

$10,000.

The additional amount shown comes from Matching Indexed Participating Loan activity.

And those matching amounts are loans.

They are not free carrier contributions.

They are not bonuses.

They are not employer matches.

The Loans Also Accumulate

A later JUMP does not simply erase or pay off the previous JUMP loans.

The policy indebtedness associated with earlier Matching Indexed Participating Loans remains part of the policy economics.

That’s why you can’t evaluate the strategy by looking only at the larger annual funding number.

You need both sides of the ledger.

More Participating Value and More Indebtedness

That’s the tradeoff.

The strategy attempts to create additional policy value that can participate in the applicable indexed-crediting strategy.

At the same time, it creates policy indebtedness carrying the applicable loan cost.

If the relationship is favorable, that can improve the modeled economics.

If it isn’t, the loan structure can create additional pressure.

Now We Can Explain the 8.74% Number

Under the assumptions used in one JUMP model:

Base historical indexed-crediting result: 6.87%

Modeled positive spread: 1.87 percentage points

The Year 3 modeled effective result was expressed as approximately:

6.87% + 1.87% = 8.74%.

Then the Model Layers the Effect Across Successive JUMPs

Under that modeling framework:

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

That’s where the larger modeled effective numbers come from.

But Stop Before Calling 17.35% an IUL Return

It isn’t an indexed-crediting rate.

It isn’t an S&P 500 return.

It isn’t a guaranteed policy return.

It isn’t automatically the policy’s net return after all costs.

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

That’s a Very Different Statement

And it’s the statement I want you to understand.

Big numbers are easy to sell.

Mechanics are harder.

I care about the mechanics.

What Happens If the Historical Spread Doesn’t Repeat?

Then the model changes.

Suppose future indexed-crediting results average lower than the historical example.

Or the applicable loan rate moves from 5% toward its contractual maximum of 6%.

The modeled positive spread becomes smaller.

It can disappear.

It can also turn negative during individual periods.

Positive Arbitrage Is Not a Permanent Condition

This is probably the single most important sentence in the article.

Positive arbitrage is an outcome under a particular relationship between crediting and borrowing costs. It is not a permanent feature that guarantees the credited result will always exceed the loan cost.

That’s why you don’t build the retirement plan as though 1.87% is owed to you every year.

What If the Loan Rate Reaches 6%?

Using the same 6.87% historical indexed-crediting example purely for illustration:

6.87% – 6.00% = 0.87 percentage points.

The simplified modeled spread would shrink from:

1.87 percentage points

to:

0.87 percentage points.

Again, that doesn’t tell you the complete policy result.

But it shows why loan-rate assumptions matter.

And What If Crediting Falls Below 6%?

Then the simplified relationship becomes unfavorable.

That’s why a responsible analysis needs to test both favorable and unfavorable loan economics.

What About Policy Charges?

They still exist.

This cannot be repeated enough.

If someone shows you positive arbitrage but leaves out cost of insurance and other applicable policy charges, you have not seen the complete retirement math.

The arbitrage relationship is one component of the strategy.

It is not the entire policy.

What About the 0% Floor?

The 0% indexed-crediting floor can protect the applicable indexed-crediting calculation from being credited below 0% under the example strategy.

But a 0% crediting result can still be a difficult year for a leveraged policy structure.

Why?

Because the applicable loan cost continues.

Policy charges continue.

And if you’re in retirement, distributions may continue too.

This Is Why We Need Post #65

Positive arbitrage is the good side of the relationship.

Negative arbitrage is the other side.

You should understand both before relying on policy loans for retirement.

How Does Positive Arbitrage Affect Retirement Income?

If favorable loan economics occur over time and the policy performs sufficiently under the modeled assumptions, the additional participating policy value associated with the JUMP structure can potentially contribute to greater projected policy values and retirement-income capacity.

That’s the theory.

Then the actual policy has to prove it.

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

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

Positive-arbitrage mechanics can be one contributor to that modeled difference.

But I don’t want you hearing:

“Positive arbitrage means 300% more retirement income.”

That’s not what the comparison says.

The 300% Difference Can Come From Multiple Moving Parts

The modeled result can be affected by:

• Contributions
• Employer contributions where applicable
• Taxes
• Market-return assumptions
• Indexed-crediting assumptions
• Policy charges
• Loan mechanics
• Loan costs
• Matching Indexed Participating Loan funding
• Future JUMPs
• Retirement-distribution mechanics
• Retirement timing
• Longevity

Positive arbitrage is one piece of that system.

Don’t Buy the Strategy Because You Saw “300% More”

Ask:

“Show me where the 300% came from.”

Then start pulling assumptions apart.

What indexed-crediting rate did you use?

What loan rate?

How many JUMPs?

What if later JUMPs aren’t approved?

What taxes did you assume on the 401(k) or IRA?

What policy charges were included?

How much retirement income was taken?

How long did the projection run?

Then Try to Break the 300% Number

Raise the loan rate.

Lower the crediting assumption.

Remove future JUMPs.

Run several weak years.

Extend longevity.

Keep the policy charges in the model.

Now compare again.

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.

The participating-loan mechanics can be an important part of that comparison.

But again, you need to define exactly what the “traditional IUL” comparison uses.

What loan type?

What loan rate?

What funding?

What death benefit?

What indexed-crediting assumptions?

What policy charges?

What retirement distributions?

If those aren’t visible, the 40% number isn’t useful enough.

Positive Arbitrage Is More Powerful as an Explanation Than a Sales Phrase

I don’t want to tell someone:

“This policy gives you arbitrage.”

That makes it sound like a guaranteed feature.

I would rather say:

“Here’s the indexed-crediting assumption. Here’s the applicable loan cost. Here’s what the relationship looks like when crediting is higher. Here’s what happens when it isn’t.”

That’s a real explanation.

What Should You Ask About IUL Positive Arbitrage?

1. What type of policy loan is being used?
2. Does the applicable policy value continue to participate in indexed crediting while the loan is outstanding?
3. What is the current applicable loan rate?
4. What is the contractual maximum loan rate?
5. Can the loan rate change?
6. What indexed-crediting assumption is being used?
7. What cap is being assumed?
8. What participation rate applies?
9. Does a spread apply to the indexed-crediting strategy?
10. Are dividends being incorrectly included in an S&P 500 comparison?
11. What happens when indexed crediting is below the loan cost?
12. What happens during a 0% crediting period?
13. Are policy charges included in the overall projection?
14. How much outstanding indebtedness develops over time?
15. What happens if the loan rate reaches its contractual maximum?
16. What happens if future JUMPs are not approved?
17. Does the retirement-income projection remain durable at age 95 or beyond?

One Question Cuts Through Almost Everything

Ask:

“Can you show me the same strategy without positive arbitrage?”

That’s a good test.

If the policy is modeled with indexed crediting equal to or below the loan cost for a period, what happens?

Does the strategy still have room?

Does projected retirement income need to be reduced?

Does the policy come under serious pressure?

Now you understand how dependent the strategy is on favorable loan economics.

Future JUMPs Matter Too

The example JUMP progression assumes planned increases 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 health, income, employment, occupation, existing insurance, driving history, risky hobbies, or other applicable underwriting factors change, future approval can be affected.

A Missed JUMP Can Pause the Progression

Under the mechanics we’re discussing, failing to qualify for the next JUMP does not necessarily erase the matching-loan level already achieved.

The client can remain at the previously achieved level and may potentially reapply at a later policy anniversary if circumstances improve, subject to applicable underwriting and policy rules.

But if the original retirement projection assumed future JUMPs that never happen, rerun it.

You Can’t Keep the Old Retirement Number After Changing the Assumptions

This applies to everything.

If the loan rate changes, rerun it.

If indexed crediting comes in lower, rerun it.

If a JUMP isn’t approved, rerun it.

If retirement starts earlier, rerun it.

If you need more income, rerun it.

That’s what retirement modeling is supposed to do.

Positive Arbitrage Should Never Be the Only Reason You Buy an IUL

You’re buying a permanent life insurance contract.

It has a death benefit.

It has policy charges.

It has contractual rules.

It has loan provisions.

It has tax considerations.

It has underwriting.

Positive arbitrage is one potential economic relationship inside the strategy.

It isn’t the entire reason the contract exists.

And It Definitely Isn’t Guaranteed Free Money

That’s the phrase I would remove from your vocabulary.

The loan is real.

The loan cost is real.

The indebtedness is real.

The indexed crediting is nonguaranteed.

The policy charges are real.

The strategy works only if the complete economics support it.

Why This Matters More When You’re Close to Retirement

If you’re 58 or 60, you don’t have 40 years to recover from a major planning mistake.

You may have spent decades building your retirement assets.

Now someone is showing you a strategy involving life insurance, indexed crediting, policy loans, and retirement distributions.

Of course you’re skeptical.

You should be.

The Thought in Your Head Is Probably Not “Tell Me About Arbitrage”

It’s more like:

“What am I missing?”

“Where is the catch?”

“What happens if this doesn’t work the way the illustration shows?”

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

Those are better questions than asking for the highest illustrated number.

Because This Is Really About Independence

You don’t want a strategy that works beautifully at 65 and becomes a problem at 85.

You don’t want to discover later that you misunderstood how the loans worked.

You don’t want your children trying to untangle a policy you no longer understand.

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

“We should be able to handle this ourselves.”

Then understand the mechanics now.

The Bottom Line

Positive arbitrage with an IUL policy loan describes a favorable economic relationship where the applicable indexed-crediting result exceeds the applicable policy-loan cost.

Using the historical example in our JUMP modeling:

6.87% historical average indexed-crediting result – 5% current applicable loan rate = 1.87 percentage points of modeled positive spread.

But that spread is not guaranteed.

It’s not a net policy return.

It’s not profit after every policy charge.

And it can turn unfavorable when indexed crediting falls below the applicable loan cost.

The real question is whether the complete policy remains strong after the loans, policy charges, weaker years, retirement distributions, and longevity are included.

How We Test Positive Arbitrage at FPP Financial

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

I don’t want to tell you:

“The arbitrage works.”

I want to show you what assumptions make it work.

We’ll look at the indexed-crediting assumption.

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 applicable contractual maximum 6% loan rate.

We’ll look at the policy charges.

We’ll test weaker indexed crediting.

We’ll test 0% crediting periods.

We’ll test no future JUMPs.

We’ll test retirement distributions.

We’ll test longevity.

Then we’ll compare the projected retirement income with the alternatives 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 Where the JUMP Strategy’s Retirement-Income Difference Actually Comes From?

Don’t start with the 300% number.

Start with the mechanics.

Show me the client contribution.

Show me the matching loan.

Show me the loan cost.

Show me the indexed-crediting assumption.

Show me the positive spread.

Then show me what happens when that spread disappears.

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 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

• What Is a Matching Indexed Participating Loan in an IUL?
• What Happens If IUL Loan Rates Go Up in Retirement?
• 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, savings account, or direct investment in a market index.

The term “positive arbitrage” in this article describes a modeled economic relationship in which an applicable indexed-crediting result exceeds an applicable policy-loan cost. Positive arbitrage is not guaranteed and should not be interpreted as guaranteed profit, guaranteed interest, a guaranteed net return, or an assurance that policy values will increase.

The simplified percentage examples in this article are educational illustrations of the relationship between indexed crediting and policy-loan costs. Actual policy results are affected by policy-specific loan provisions, crediting mechanics, timing, policy values, outstanding indebtedness, cost of insurance, administrative expenses, other policy charges, withdrawals, distributions, and other factors.

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

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, loan costs, withdrawals, retirement distributions, and other policy mechanics can continue to affect policy values during a 0% indexed-crediting period.

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 discussed in this article 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.

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.

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.

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

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.

Periods in which indexed crediting is below the applicable loan cost can produce unfavorable loan economics. A 0% indexed-crediting result with a 5% applicable loan cost represents a simplified unfavorable 5-percentage-point relationship before accounting for other policy charges and mechanics. Actual dollar results can differ from simplified percentage comparisons.

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

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.

Planned death-benefit increases in the JUMP Strategy are intended to create additional policy funding capacity under the intended design and are not a guarantee that the policy will avoid MEC status. Actual MEC testing, applicable tax law, policy design, funding, death-benefit changes, underwriting, carrier procedures, and other factors govern.

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. 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 300% more investment return, indexed interest, positive arbitrage, net policy return, or S&P 500 performance. Results can change materially with contributions, employer contributions, market-return assumptions, taxes, investment expenses, indexed-crediting assumptions, insurance costs, 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 funding, indexed-crediting assumptions, policy charges, loan mechanics, loan costs, future JUMPs, death-benefit structure, and retirement distributions 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. Different strategies have different costs, tax characteristics, contribution rules, market exposure, insurance features, and distribution mechanics.

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, 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.