So what is the difference between 401(K) and an Index Universal Life. Index Universal Life is one of the hot products in the market today. The myth is that they can be used as a retirement vehicle. Is that true? Let’s dive into the differences between the two.
When you think of life insure what comes to your mind. For one I think of Term life and Whole Life. These are product types that have typically been bought by the average American however there are other product types such as universal and variable life as well.
I recently attended a seminar organized by one of colleagues on the Index Universal life. I heard that it is a good alternative to traditional retirements plans such as the 401K or the IRA. Let’s do a comparison between the two products.
|401 (k)||Index Universal Life|
|Money is added pre or post tax||Money is added post tax|
|Not a life insurance product||Life Insurance product with cash value|
|Comes with a company match sometimes||Solely based on what you put into the policy|
|A lot more options in terms of investments||Tied to the S&P 500|
|Does not have a guaranteed floor. You can lose money.||Has a guaranteed rate. You will not lose money.|
|Does not have a cap. You stand to gain a lot if your investments are going up.||Has a cap. Contrary to the 401(k) you have a cap and you may not gain as much as your 401(k)|
|IULs have high fees, which could slice your returns significantly over time and complicated terms. They may not be a good fit for people other that high net worth individuals looking to reduce their tax burden.|
|Depending on if it is a Roth vs not a Roth you will pay taxes||Tax Free Death Benefit|
I tried to provide an unbiased high level understanding of the differences between the two products. Have you invested in an IUL and what has been your experience? v