Test the contract before
you commit to it.

Start with the obligations the death benefit must replace: debts, income for a chosen number of years, education or caregiving goals, and final expenses. Then subtract liquid assets and existing coverage that are truly available for those needs. The result is a planning estimate, not an underwriting quote; ownership, term length, inflation, taxes, and survivor income still matter.

Not categorically. A 401(k) is an employer retirement plan and may include a match; a Roth IRA is an individual retirement account with statutory eligibility and contribution rules; an IUL is permanent life insurance with charges, a death benefit, and non-guaranteed index-linked crediting. Compare the job each dollar must do, costs, liquidity, guarantees, tax rules, and the consequences if the policy lapses—not a single illustrated return.

Compare guaranteed and non-guaranteed columns, year-by-year charges, premium duration, death-benefit option, cap and participation assumptions, loan type and rate, surrender values, and the year the policy lapses under each scale. Ask for lower-crediting and loan scenarios. An illustration explains how a policy could behave; it is not a projection or guarantee.

A 0% floor generally means the index-crediting calculation will not post a negative index credit for that segment. It does not stop cost-of-insurance charges, expense charges, rider charges, surrender charges, or loan interest from reducing cash value. The contract can lose value in a zero-credit year.

The insurer lends against policy value under contract-specific terms. Interest accrues, available cash value and death benefit may be reduced, and a large unmanaged balance can contribute to lapse. A lapse or surrender with gain and an outstanding loan can create a tax consequence; MEC distributions follow different ordering rules.

A life insurance contract generally becomes a MEC when cumulative premiums exceed the seven-pay limit under IRC §7702A, subject to the statute’s rules and material-change testing. MEC status changes how distributions are taxed and generally does not disappear simply because later premiums stop. The carrier administers the test; the design needs funding room before money is sent.

Review it at least annually and whenever funding, loans, beneficiaries, ownership, health, family circumstances, business value, or planning goals change. The review should use a current in-force illustration and the actual annual statement—not the original sales illustration alone.

Do not cancel first. Compare current and proposed guarantees, surrender charges, new contestability and suicide periods, underwriting, basis, loans, MEC status, and the reason for the change. IRC §1035 can allow a qualifying direct exchange without current gain recognition, but it does not make a bad replacement good or eliminate contract and tax risks.

Insurance can provide liquidity, but ownership and redemption mechanics must match a current legal agreement and valuation plan. In Connelly v. United States, the Supreme Court held that company-owned insurance proceeds used for a share redemption increased the company value for federal estate-tax valuation without an offsetting redemption liability. Business owners should coordinate the agreement, valuation, policy ownership, and tax analysis with qualified legal and tax professionals.