IUL for Someone With a Pension: Does It Still Make Sense?

You’ve got something a lot of retirees wish they had.

A pension.

A monthly check that may continue for the rest of your life under the terms of your pension plan.

So if someone starts talking to you about indexed universal life for retirement, there’s an obvious question:

“Why would I need another retirement-income strategy? I already have a pension.”

That’s exactly the question you should ask.

An IUL shouldn’t get added to your retirement plan simply because there’s room in the budget to fund one.

It needs a job.

And if your pension already does that job well, we need to figure out what the IUL would actually add.

A Pension Can Change the Entire Retirement Conversation

Consider someone who is 57 and planning to retire at 65.

At retirement, they’re expecting:

• $6,000 per month from a pension
• Social Security
• $900,000 in a Traditional 401(k) and IRA
• $150,000 in Roth assets
• $250,000 in taxable investments and cash

That’s a very different starting point from someone retiring with $1.3 million and no pension.

The person without the pension may need the portfolio to create most of the retirement paycheck.

The person with the pension may already have a large portion of essential monthly expenses covered.

That changes what the other assets need to accomplish.

Don’t Start With the IUL

Start with the pension.

I want to know:

• When does it start?
• How much does it pay?
• Is the benefit level or does it have an adjustment provision?
• What survivor options are available?
• What happens if you choose a joint-and-survivor option?
• What happens if you die shortly after retirement?
• What portion is taxable?
• What other retirement income will you have?

Until those questions are answered, we don’t know what problem remains to be solved.

The Pension May Cover Your Floor

Suppose your essential retirement expenses are $7,500 per month.

Your pension provides $6,000.

Social Security eventually adds another $3,000.

On paper, your basic retirement-income floor may look strong.

That’s good.

But it doesn’t necessarily mean the rest of your retirement plan is finished.

Because Retirement Isn’t Just About Paying the Electric Bill

You may also want money for:

• Travel
• Healthcare
• Home renovations
• Helping children or grandchildren
• Large purchases
• Long-term care needs
• Legacy goals
• Unexpected expenses

And there is another question:

How much control do you have over the tax character of the income you receive?

Your Pension May Create Taxable Income Every Year

Many pension payments are taxable under federal rules, although the exact treatment is affected by the type of plan, any after-tax employee contributions, and the specific pension arrangement.

If you also have substantial Traditional 401(k) and IRA assets, retirement can eventually contain several sources of taxable income.

That can include:

• Pension income
• Traditional IRA withdrawals
• Traditional 401(k) withdrawals
• Required minimum distributions when applicable
• Potentially taxable Social Security benefits
• Interest and other taxable investment income

Now the retirement question changes.

It’s no longer simply:

“Do I have enough income?”

It may become:

“How much control do I have over where my next dollar comes from?”

That’s Where Another Retirement Bucket Can Become Interesting

A properly structured indexed universal life policy can potentially provide permanent life insurance protection, cash-value accumulation, and access to available policy values.

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 the policy remaining in force and the applicable tax rules.

That’s different from saying:

“IUL income is tax-free.”

That shortcut leaves out too much.

Policy Loans Are Still Loans

They create policy indebtedness.

Applicable loan charges accrue.

Outstanding loans can reduce policy values and net death benefit.

Large loans can increase lapse risk.

If a policy with gain and outstanding indebtedness lapses or is surrendered, taxable income may result.

So the potential tax treatment only matters if the policy remains healthy enough to support the strategy.

What Could an IUL Add If Your Pension Already Covers Your Expenses?

Potentially, a different kind of retirement bucket.

Think of a household with:

Bucket 1: Pension income.

Bucket 2: Social Security.

Bucket 3: Traditional retirement accounts.

Bucket 4: Roth assets.

Bucket 5: Taxable investments.

Bucket 6: A properly structured permanent life insurance policy.

You don’t need every bucket.

The point is that they don’t all behave the same way.

The Pension and IUL Shouldn’t Be Asked to Do the Same Job

Your pension may be the predictable monthly income foundation.

An IUL might be evaluated for another purpose, such as:

• Supplemental retirement income
• Tax diversification
• Permanent death-benefit protection
• Legacy planning
• Additional liquidity under policy provisions
• Reducing how heavily other retirement accounts need to be accessed in certain years

If none of those solve a meaningful problem for you, that matters too.

A Pension Can Actually Make Retirement-Income Flexibility More Valuable

This sounds backward at first.

If you already have reliable pension income, why care about another source?

Because the pension may cover your core expenses.

That can potentially give you more discretion over where additional spending money comes from.

Instead of asking one investment portfolio to produce your entire paycheck, you may be deciding how to fund travel, gifts, major purchases, or lifestyle expenses above the pension floor.

That’s a different problem.

But Don’t Buy an IUL Just for “Tax-Free Income”

That phrase gets thrown around too casually.

You need to compare the entire policy.

What does it cost?

How is it funded?

How much permanent insurance do you actually need?

What happens in weak crediting years?

What happens to loan costs?

How much income is being projected?

How long is that income supposed to last?

What happens if you live to 95?

That’s the analysis.

Now Add the IUL JUMP Strategy

The strategy we’re evaluating uses a Matching Indexed Participating Loan during accumulation.

Let’s use the standard example where the client contributes:

$10,000 per year.

Here’s the Example Funding Progression

That Doesn’t Mean the Client Is Writing a $60,000 Check

The client’s out-of-pocket contribution in the example remains:

$10,000.

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

That additional funding isn’t free money.

It isn’t a pension contribution.

It isn’t an employer match.

It isn’t a tax credit.

It is created through policy loans.

What Happens to the Loan Proceeds?

Under the JUMP strategy being modeled, the loan proceeds are redeployed into the same policy as additional funding.

The loan-funded value remains participating under the applicable indexed-crediting strategy in the example.

The associated policy indebtedness carries the applicable loan cost.

Think of the JUMP Policy as Two Economic Buckets

Bucket 1: Value associated with the client’s own contributions.

Bucket 2: Value associated with accumulated Matching Indexed Participating Loan-funded amounts.

Under the example, both participate under the same applicable indexed-crediting strategy with a potential 10% cap and 0% indexed-crediting floor.

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

The Current Applicable Loan Rate Is 5%

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

5%.

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

6%.

So we don’t just model 5%.

We stress-test 6% too.

Why Does the Loan Rate Matter?

Because the strategy uses policy-loan mechanics.

If the economics only look attractive with one favorable loan assumption, that’s something you need to know before retirement.

Not after.

Positive Arbitrage Is One Part of the Model

Suppose applicable indexed crediting for a period is:

8%.

And the applicable loan cost is:

5%.

The simplified economic relationship is:

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

That’s a simplified example of positive arbitrage.

But Positive Arbitrage Isn’t Guaranteed

Suppose applicable indexed crediting is:

0%.

And the applicable loan cost remains:

5%.

Now you have:

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

That relationship works against the strategy for that period.

A Pension Doesn’t Make That Risk Disappear

This is important.

Having a strong pension can make your overall retirement plan more resilient.

It doesn’t change the economics inside the life insurance policy.

The policy still needs to work on its own terms.

And the 0% Floor Doesn’t Mean the Policy Can’t Lose Value

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

Policy charges can continue.

Cost of insurance can continue.

Loan costs can continue.

Retirement distributions can reduce policy values.

Overall policy value can still decline.

Where Does the 6.87% Historical Example Come From?

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

Dividends were excluded because the policy is not directly invested in the S&P 500.

The analysis applied:

A 10% cap

and:

A 0% indexed-crediting floor.

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

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

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

6.87%.

Don’t Call 6.87% an S&P 500 Return

It isn’t.

It isn’t the historical total return of the S&P 500.

It isn’t a guaranteed future IUL rate.

It isn’t a guaranteed policy return.

It is the historical average credited result produced by that specific capped-and-floored analysis of annual S&P 500 price changes, excluding dividends.

The Simplified Historical/Modeling Spread

Using the current applicable 5% loan rate:

6.87% – 5.00% = 1.87 percentage points.

That is the simplified favorable spread used in the historical/modeling example.

It isn’t guaranteed to repeat.

What Happens as JUMPs Are Added to the Model?

Under assumptions used in one JUMP analysis, the combination of the base indexed-crediting assumption and the positive-arbitrage effect attributed to successive Matching Indexed Participating Loans produced modeled effective results reaching 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 S&P 500 returns.

They’re not indexed-crediting rates.

They’re not guaranteed policy returns.

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

Now Bring the Pension Back Into the Comparison

This is where the analysis gets more useful.

Suppose your pension already pays enough to cover most of your basic expenses.

That may mean the IUL isn’t being asked to fund groceries and utilities every month.

Maybe it’s being asked to fund discretionary spending.

Maybe it’s being used to supplement income during specific years.

Maybe the priority is preserving more legacy value.

Maybe you simply don’t need as much projected IUL income.

That can materially change how the policy should be modeled.

Don’t Automatically Maximize IUL Income Just Because the Illustration Says You Can

If your pension already covers a large portion of your lifestyle, the better question may be:

“How much income do I actually need from this policy?”

Taking less from a policy may potentially leave more room for policy durability and death-benefit objectives.

That tradeoff needs to be modeled.

What About the Approximately 12% Retirement Distribution Model?

Under modeling used with the IUL JUMP Strategy, we’ve evaluated retirement distributions at approximately 12% per year of policy/account value under specific assumptions.

That’s a modeled distribution level.

It isn’t a universal safe withdrawal rate.

It isn’t guaranteed lifetime income.

And if your pension means you only need a smaller amount from the policy, there is no reason to assume the maximum modeled distribution is automatically the right target.

A Pension Can Also Change Your Sequence-of-Returns Problem

If your essential expenses are largely covered by pension income, you may not need to sell as much from a market portfolio during a downturn.

That can reduce pressure on other retirement assets.

But again, that doesn’t automatically make an IUL unnecessary.

It changes the job description.

Maybe the policy’s value is less about creating a basic paycheck and more about creating another source of accessible retirement value with different characteristics.

Now Look at Your Traditional Retirement Accounts

Suppose you have a $1.5 million pension-backed retirement plan with substantial Traditional 401(k) and IRA assets.

You may eventually have pension income and taxable distributions occurring in the same years.

Required minimum distributions may also become relevant under the rules applicable to you.

That can make tax diversification more interesting.

But Don’t Compare an IUL With a Pension as Though They’re Substitutes

They aren’t.

A pension and an IUL have very different structures.

A pension may provide contractual lifetime income under the pension plan’s terms.

An IUL is life insurance with cash values, policy charges, crediting mechanics, policy loans, and a death benefit.

They solve different problems.

The Better Comparison Is the Whole Retirement System

Ask:

“What happens if I keep the pension, keep my existing retirement assets, and add this IUL strategy?”

Then compare that with:

“What happens if the same out-of-pocket dollars go somewhere else?”

Now you’re testing opportunity cost.

This Is Where the Up-to-300% Comparison Needs Extra Care

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 already have a pension, that comparison can still be relevant when you’re deciding where additional retirement dollars should go.

But the pension should be held consistently in both household scenarios if it’s going to exist either way.

Don’t Credit the IUL for Income the Pension Was Already Going to Produce

This sounds obvious.

But it’s critical for an honest comparison.

If both scenarios include the same $72,000 annual pension, the IUL doesn’t get credit for that $72,000.

Compare what changes.

That’s how you isolate the actual value of the strategy being tested.

And 300% More Projected Retirement Income Does Not Mean 300% More Return

It doesn’t mean the IUL earns 300% more.

It doesn’t mean your cash value will be 300% larger.

It doesn’t mean every pension retiree gets 300% more income.

And it doesn’t mean you should give up a pension to buy an IUL.

The statement refers to certain modeled retirement-income comparisons under specific assumptions.

Where Can the Difference Come From?

The modeled result can be affected by:

• Contributions
• Taxes
• Retirement age
• Pension income
• Pension start date
• Distribution timing
• Market assumptions
• Indexed-crediting assumptions
• Policy charges
• Matching Indexed Participating Loan mechanics
• Policy-loan costs
• Positive and negative arbitrage
• Future JUMP approvals
• Retirement duration
• Longevity
• Survivor income

Change the assumptions and you can change the result.

The 300% Isn’t the Sales Pitch. It’s the Question.

If a model shows up to approximately 300% more projected retirement income, ask:

“Show me exactly where the difference comes from.”

Then make sure the pension assumptions are identical where appropriate.

Make sure the contribution assumptions are comparable.

Make sure taxes are being handled consistently.

Make sure longevity is the same.

Make sure the comparison isn’t hiding costs.

What About Approximately 40% More Than a Traditional IUL?

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

Again, that’s a modeled result, not a guarantee.

The pension doesn’t create that difference.

The difference is tied to the policy designs and assumptions being compared.

Your Pension Survivor Election May Matter More Than You Think

This is one of the biggest pension-specific issues.

You may be offered choices such as a larger single-life pension or a reduced payment that continues in some form to a surviving spouse.

The exact options are controlled by your pension plan.

Don’t make that decision based on a slogan.

“Take the Bigger Pension and Buy Life Insurance” Is Not Automatically the Answer

Sometimes people call this pension maximization.

The concept can sound simple:

Take the higher pension benefit.

Use life insurance to protect the spouse.

But the real analysis can involve:

• The pension’s actual survivor options
• Life expectancy
• Health and insurability
• Insurance premiums
• Policy guarantees
• Nonguaranteed values
• Tax treatment
• Inflation
• Timing of death
• Need for survivor income

That decision should be modeled carefully before making an irrevocable pension election.

An IUL Should Not Be Used to Make a Weak Pension Election Look Better

If the pension’s joint-and-survivor option is valuable for your household, don’t throw it away just because an insurance illustration looks attractive.

Compare the actual economics.

What happens if you die at 67?

What happens at 78?

What happens at 92?

What does the surviving spouse receive in each scenario?

That’s the test.

Future JUMPs Still Require Future Underwriting

The standard JUMP example shows planned JUMPs in policy Years:

3, 5, 7, 9 and 11.

Each planned JUMP requires a new application and approval for the applicable death-benefit increase.

Future JUMPs aren’t guaranteed at initial policy issue.

That Matters for Someone Approaching Pension Retirement

Suppose you’re 55 and your pension begins at 65.

Your JUMP model may include future increases before retirement.

But your health, income, employment, existing insurance, driving history, occupation, risky activities, and other underwriting factors can change.

So don’t treat every future JUMP shown in a projection as something already approved.

What If You Don’t Qualify for the Next JUMP?

Under the mechanics we’re discussing, a missed JUMP can pause the progression rather than automatically resetting the previously achieved strategy.

But the retirement projection needs to be updated.

That’s why one of the stress tests should always be:

No additional future JUMPs.

Now Run the Pension Stress Test

If I’m evaluating an IUL for someone with a pension, I want to see more than the favorable illustration.

I want to see:

1. The actual pension benefit.
2. The actual pension start date.
3. The pension’s survivor options.
4. The pension income after the first spouse dies.
5. Social Security assumptions.
6. Traditional retirement-account balances.
7. Roth balances.
8. Taxable assets.
9. Required retirement spending.
10. Discretionary retirement spending.
11. The actual permanent life insurance need.
12. The proposed IUL funding.
13. The current applicable 5% policy-loan rate.
14. The contractual maximum 6% loan rate.
15. Several weak and 0% indexed-crediting periods.
16. No additional future JUMPs.
17. Retirement five years early.
18. Higher healthcare expenses.
19. Higher retirement spending.
20. A lower-than-expected pension survivor benefit.
21. One spouse dying early.
22. The surviving spouse living to 95 or beyond.
23. Projected policy indebtedness.
24. Projected net death benefit.
25. Projected spendable retirement income.

Then Ask What the IUL Actually Improved

Did it improve retirement-income flexibility?

Did it improve the survivor plan?

Did it create meaningful legacy value?

Did it give you another useful source of retirement funds?

Did it reduce pressure on other assets?

Was the improvement large enough to justify the policy’s costs and complexity?

Those are much better questions than:

“Does IUL work if I have a pension?”

There’s Also a Psychological Trap With Pensions

A pension can make you feel like retirement is already solved.

You may think:

“I get a check every month. What could go wrong?”

Maybe the pension is strong.

But your retirement still includes taxes, healthcare, inflation, survivor planning, legacy decisions, large expenses, and longevity.

The pension solves an important part of the problem.

It doesn’t automatically solve every part.

There’s an Opposite Trap Too

Some people become so focused on creating more retirement income that they keep adding products and strategies long after the core problem is solved.

If your pension, Social Security, retirement accounts, and other assets already comfortably support your goals, more complexity isn’t automatically better.

That’s why the IUL needs a specific job.

The Real Goal Is Independence

You want to know the pension will be there.

You want your other assets to last.

You want your spouse protected.

You don’t want one unexpected expense to throw the plan off course.

And you don’t want your children becoming the backup retirement plan.

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

“We should be able to handle this ourselves.”

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

That’s the emotional side of retirement math.

You aren’t simply trying to maximize an account balance.

You’re trying to protect your ability to make your own decisions later.

When Might an IUL Be Worth Evaluating Alongside a Pension?

It may deserve a serious comparison when:

• Your pension covers only part of your desired retirement lifestyle
• You have substantial Traditional retirement assets
• You want another retirement-income bucket with different characteristics
• You have a legitimate permanent life insurance need
• Survivor planning is important
• Legacy planning is important
• You have durable cash flow available for long-term funding
• You understand policy-loan mechanics
• You understand future JUMPs require future underwriting
• The modeled benefits justify the costs and complexity

When Might an IUL Add Less Value?

If your pension and other assets already comfortably solve your income, survivor, liquidity, and legacy goals.

If you don’t have a meaningful permanent life insurance objective.

If funding the policy would weaken emergency reserves.

If the strategy requires unrealistic crediting assumptions.

If the policy only works with today’s loan rate.

If the plan assumes every future JUMP will be approved.

If you’re giving up a valuable pension survivor election without a serious comparison.

If the additional complexity isn’t producing a meaningful improvement.

The Bottom Line

Does an IUL still make sense if you have a pension?

It can deserve consideration when it solves a problem the pension doesn’t solve.

Your pension may already provide a strong retirement-income foundation.

Great.

Then don’t ask the IUL to duplicate it.

Ask whether the IUL improves:

• Retirement-income flexibility
• Tax diversification
• Permanent protection
• Survivor planning
• Legacy planning

If it doesn’t, that’s useful information.

If it does, make the strategy prove how much value it adds.

Let the math do the talking.

How We Test an IUL When You Already Have a Pension at FPP Financial

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

We start with the pension.

How much it pays.

When it starts.

The survivor election.

Your Social Security.

Your Traditional retirement accounts.

Your Roth assets.

Your taxable investments.

Your cash.

Your debt.

Your insurance needs.

Your retirement age.

Your retirement-income target.

Your legacy goals.

Then we model the IUL strategy.

We look at client-funded dollars.

We look at Matching Indexed Participating Loan mechanics.

We look at policy values.

We look at policy charges.

We look at outstanding policy indebtedness.

We run the current applicable 5% loan rate.

We stress-test the contractual maximum 6% rate.

We add weak and 0% indexed-crediting periods.

We run no additional future JUMPs.

We model one spouse dying first.

We extend the survivor through age 95 and beyond.

Then we compare projected spendable retirement income using clearly stated assumptions.

We don’t sell you a retirement strategy. We run the math and let you decide.

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

Want to See What an IUL Would Actually Add to Your Pension Retirement?

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

In certain modeled comparisons, it has also produced approximately 40% more projected retirement income than the traditional IUL structure being compared.

Those are modeled results, not guarantees.

If you have a pension, the pension needs to be incorporated consistently into the household analysis so you can see what the IUL strategy itself actually changes.

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

• How Much Retirement Income Can an IUL Produce?
• What Happens to IUL Policy Loans When You Die?
• How to Stress-Test an IUL Before You Use It for Retirement

Disclosure

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

Pension benefits, survivor elections, cost-of-living adjustments, commencement dates, guarantees, taxation, lump-sum options, and other provisions vary by pension plan. Any pension examples in this article are hypothetical unless specifically identified otherwise. Actual pension documents and plan administrators should be consulted before making pension elections or retirement decisions.

Pension elections may be irrevocable or difficult to change after commencement under applicable plan rules. Decisions involving single-life versus joint-and-survivor benefits, lump sums, retirement dates, beneficiary arrangements, or the use of life insurance in connection with a pension should be reviewed carefully with qualified professionals before an election is made.

Projected retirement income from an indexed universal life policy is not guaranteed unless specifically identified as guaranteed under the applicable insurance contract. Nonguaranteed illustrated values can vary materially from actual policy results.

References to approximately 12% annual retirement distributions describe modeled distribution levels under specific assumptions. They should not be interpreted as universal safe withdrawal rates, guaranteed distribution rates, guaranteed lifetime income, or assurances that an indexed universal life policy can sustain those distribution levels for any particular period.

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, distributions, withdrawals, 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. Dividends from the S&P 500 are not received as they would be through direct ownership of the underlying securities.

References to a 10% cap and 0% indexed-crediting floor describe the example strategy discussed in this article. Actual caps, participation rates, spreads, crediting methods, indexed strategies, and other nonguaranteed elements are governed by the applicable insurance contract and current declarations and may change where permitted by contract.

Matching Indexed Participating Loans are policy loans. They are not free contributions, pension 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 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.

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.

Positive arbitrage is not guaranteed. Periods in which applicable indexed crediting is below the applicable policy-loan cost can create unfavorable loan economics. Prolonged unfavorable loan economics combined with policy charges and distributions can place additional pressure on policy values and long-term policy durability.

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, sustainable withdrawal 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.

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.

Death-benefit increases associated with planned JUMPs are designed to create additional funding capacity under the intended policy design while managing applicable MEC limits. Increasing death benefit does not by itself guarantee non-MEC status. Actual policy design, premium funding, tax rules, underwriting approval, applicable procedures, and contract provisions control.

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.

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

Policy values from a properly structured and maintained non-MEC life insurance policy may potentially be accessed through withdrawals to basis and policy loans without current income taxation under current federal rules, subject to applicable requirements. Tax treatment can be affected by basis, MEC status, policy lapse, surrender, outstanding indebtedness, and other circumstances.

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, sustainable withdrawal rate, guaranteed lifetime income, pension income, or S&P 500 performance. Pension income should be treated consistently across comparison scenarios where the same pension would exist under either strategy. Contributions, taxes, retirement timing, pension assumptions, indexed-crediting results, policy-loan mechanics, loan rates, policy charges, future JUMPs, distributions, survivor benefits, longevity, and other assumptions can materially alter the comparison.

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. Contributions, indexed-crediting assumptions, distribution patterns, policy charges, loan provisions, loan costs, future JUMPs, death-benefit structure, retirement timing, and longevity can materially alter the comparison.

Comparisons involving a pension and an IUL should account for the actual pension benefit, commencement date, survivor election, taxation, inflation or adjustment provisions, other retirement assets, insurance needs, policy costs, policy-loan mechanics, retirement spending, and longevity. A pension and an indexed universal life policy have materially different contractual structures and should not be treated as interchangeable retirement products.

FPP Financial does not provide tax, legal, accounting, investment, securities, pension, or estate-planning advice. Individuals should consult their pension plan administrator and qualified tax, legal, accounting, insurance, financial, estate-planning, and other appropriate professionals regarding their individual circumstances before making an irrevocable pension election, purchasing or modifying life insurance, changing retirement-plan contributions, taking policy loans, accessing policy values, or implementing any retirement-income strategy discussed here.