401k vs IUL

7 Replies

I'm interested in opinions on Indexed Universal Life Insurance vs. 401k options. I know both can be used to invest in real estate while saving for retirement. Its tough to find unbiased opinions on theses retirement strategies. Thoughts?

@Kyle Doney   Universal Life title  is just what its name says it is . it is a life insurance policy that will have a costs for benefits as well as a fund to accumulate cash value. Universal life has tax benefits but it not predominantly an investment  A 401k is a type of pension that has long term tax benefits and will also have fees attached to it as well as provisions for loans. The universal life option is excellent if you need additional life insurance, if not you will be paying fees for benefits you do not need.

If your employer is offering a 401 k it often comes with a company match that makes it very attractive.

hope this gives you some useful information but If you need life insurance now you could always buy term and also make deposits into your 401k

@Kyle Doney  

Michael gave you good explanation above. I think that you are comparing apples and oranges here. While Universal Life Insurance has a savings component in it, keep in mind that the premiums that you are paying going to cover: first - cost of life insurance, second - commissions of the agent who sold you the policy, and lastly the third - money that is left over going into some kind of savings or investment account. 

Also keep in mind that the cost of life insurance is going up every year and eventually premiums that you are paying are not enough to cover the cost of the insurance, at that time funds from your savings component are used to supplement the cost of insurance. Eventually your savings/investment component will run out of money. These policies are also known as "self-distracting". 

Do your own research on this but here is on helpful link:


It is never good idea to mix life insurance and investments together. If you need life insurance - buy cheap term life insurance policy to protect your loved ones who depend on your income in case you die. You can buy pretty inexpensive 30 or 40 year term life policy at your age (assuming you are healthy). Never dump any additional money into the life insurance policy, invest it on your own. This way you can be in control of both: the insurance and your investment (the opposite is true with the cash value life insurance).

There is no way you can use to invest life insurance into real estate directly (although some of the options might offer you the ability to invest in some REIT or something similar, but you will not have the control over the investment). 

Hope this helps and wish you the best in your investment journey! 

Hi Kyle. I live in Arvada too. I agree with Michael to the extent that each is probably best suited to different needs. Life insurance is great if you need life insurance. A good 401k is an excellent investment vehicle. Full disclosure, I set up Solo 401k plans that can invest into real estate so I'll understand if you don't consider this unbiased. I will say that you can buy life insurance within many 401ks plans, so that may factor into your decision as well.

I want to add that Dmitriy's post is excellent too. I just didn't see it till after I posted my initial response.

Kyle, there are strategic ways IUL's can be structured with many benefits and advantages.  Don't just go to a life insurance agent or a financial advisor.  Find a reputable IUL professional.  There are hundreds of IUL's out there.  They will do a side by side and show you the difference.  It's one of the most popular products used by many wealthy folk.  Good Luck!

Hi Kyle,

I borrowed off my employer matched 401K to finance my first duplex.  There were several pros and cons to this type of borrowing.


1. The fee to borrow off my own money was $75.00.

2. I borrowed the money at 4% interest which I pay back to myself and the principal amount of the loan.

3. Repayment of up to 10 years (I payed the loan off in 2 years).


1. You lose any gains in the stock market on the amount borrowed.

2. You lose the compounding interest effect of the money borrowed over time.

3. If you fail to pay the loan back the IRS will tax you 10% off the bat and then tax you again at the end of the year.

Hope this helps and best of luck!

Parts of each of these are absolutely correct. You should search for someone that's an expert on IUL's to see how they work. Many can offer them, but not many understand how to truly build them the way you're looking for them.

The 2 best types of money are free and tax free money. Understanding how they each can benefit you are important to making an informed decision.

Contributing into a 401(k) with an employer matching is "free" money. In most cases, the market would need to go down by over 50% for you to lose the money you contributed.

Tax free money is what you get from an IUL, if it's built correctly. Just be careful to diving in just because someone can sell it. Built incorrectly, this could be the worst investment choice you may ever make. There are options that some people haven't ever took the time to fully understand about IUL. In addition, IUL's never take a hit from a market loss...some even offer guaranteed growth.

When we're closer to retirement, we don't have as many tax write offs. Withdrawals from an IUL's can be a big advantage when you're looking to increase your income without having to claim it on your tax returns.

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