Strategy

Max-funded IUL: maximum cash value, minimum death benefit.

A max-funded IUL is the core accumulation play. Premium runs right up to the IRC §7702A MEC threshold, the death benefit is structured to the §7702 minimum corridor, and every premium dollar does as much accumulation work as the tax code allows.

The §7702 corridor and the MEC ceiling

IRC §7702 defines what counts as a life-insurance contract for federal income-tax purposes, requiring a specific relationship between cash value and death benefit (the corridor). IRC §7702A defines the Modified Endowment Contract test: how much premium can be paid in the first seven years (or after a material change) without converting the contract into something less tax-favored.

A max-funded structure threads both: enough premium to compound efficiently, but not enough to cross the MEC line, and a death benefit at the §7702 corridor minimum to reduce cost-of-insurance drag.

Why the 2020 CAA changes mattered

The §7702 interest-rate floor had been fixed at 4% since 1984. The 2020 CAA modernized it to a floating rate. The practical consequence: more premium can be paid into a given death benefit under the new rules, which makes max-funded accumulation meaningfully more efficient than it was for the prior 36 years.

Any IUL illustration or comparison that uses pre-2021 §7702 assumptions is using stale numbers. Max-funded structures designed under the new corridor rules are different products from the pre-CAA versions.

How we structure max-funded IUL

Carrier selection: A-rated or stronger, with durable cap rates and a long history of honoring illustrations. Index strategy: typically a blended sleeve across S&P 500 capped and uncapped strategies depending on the client's volatility preference. Funding plan: a documented multi-year schedule with checkpoints to confirm the policy is tracking expected cash value.

We model the policy under multiple crediting-rate scenarios, not just the AG 49-A maximum, so the household sees what the structure looks like in mediocre years, not just optimistic ones.

Common questions

What buyers usually want to know.

What does 'max-funded' actually mean?

Funded to the highest premium allowed without crossing the IRC §7702A Modified Endowment Contract (MEC) threshold. Above the MEC line, the policy loses its tax-favored loan treatment, distributions become taxable on a last-in-first-out basis with potential 10% penalties. Max-funded means premium funding right up to that line and no further.

Why minimum death benefit?

The death benefit drives the cost-of-insurance (COI) charges inside the policy. Lower death benefit = lower COI = more of each premium dollar staying in the cash-value account to compound. The death benefit floor is set by §7702 corridor rules; we structure to the minimum required corridor that keeps the policy compliant.

What changed in 2020 that made max-funded IUL more attractive?

The Consolidated Appropriations Act of 2020 (CAA) modernized the IRC §7702 interest-rate floor. The pre-CAA floor was 4 percent (last set in 1984); the CAA replaced it with a floating rate. The practical effect: more premium can be paid into a given death benefit, which makes max-funded structures meaningfully more efficient than they were pre-2021.

Who is max-funded IUL for?

High-income earners who have maxed Roth and 401(k) contributions and want additional tax-advantaged accumulation; HNWI households building a tax-diversified retirement strategy; and business owners or founders who can plan multi-decade funding consistently.

What's the main risk?

Underfunding in later years. A max-funded IUL is designed to be paid into for many years. If contributions stop early or get cut, the policy can lose efficiency or even risk lapse. We model the funding plan up front so the household knows what they're committing to and where the tolerance is.

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