Here are some potential reasons why indexed universal life (IUL) policies might be considered better than 401(k) plans:
- Potential for cash value growth: IUL policies offer the potential for cash value growth tied to the performance of a market index, such as the S&P 500. This means that policyholders have the opportunity to participate in the potential gains of the stock market, without being subject to the risks of individual stocks. In contrast, the growth of a 401(k) account is limited to the investment options and returns offered by the plan.
- Flexibility: IUL policies offer flexibility in terms of coverage amounts, premiums, and death benefits. Policyholders can adjust these aspects of the policy as their needs change over time. 401(k) plans, on the other hand, typically have a set contribution limit and a limited range of investment options.
- Tax advantages: The cash value of an IUL policy grows on a tax-deferred basis, meaning that policyholders do not have to pay taxes on the growth until they withdraw it. This can be a significant benefit, especially for those in higher tax brackets. 401(k) contributions are made with pre-tax dollars, but withdrawals are subject to income tax.
- Death benefit: IUL policies offer a death benefit for the policyholder’s beneficiaries, providing financial security in the event of the policyholder’s unexpected death. 401(k) accounts do not offer a death benefit, and the account balance is typically distributed to the account holder’s designated beneficiary upon their death.
It’s important to note that IUL policies are not without risk. The cash value of an IUL policy is tied to the performance of a market index, which means that it can fluctuate based on the performance of that index. Policyholders could potentially see a decrease in the cash value of their policy if the market performs poorly.
Ultimately, whether an IUL policy or a 401(k) plan is a better choice will depend on an individual’s specific financial goals and circumstances. It’s important to carefully consider the potential risks and rewards of each option and to work with a financial professional to determine the best course of action.