Is it Better to Invest in a Life Insurance or 401k?

Are you contemplating a life insurance policy vs. 401(k)? Are you planning for retirement? If the thought of a whole life insurance policy or a 401(k) overwhelms you, this article can help you weigh the benefits of purchasing life insurance vs. investing in a 401(k).

Generally, a 401(k) plan is an employer-sponsored defined-contribution pension account defined in subsection 401(k) of the Internal Revenue Code. This is a percentage of pre-tax salary dedicated to a retirement account. Whole life insurance for retirement provides you with unlimited access to cash and contributions, provides market safety, offers you a steady rate of return, and gives you complete control with very little government regulation. You have more retirement options with a whole life insurance plan vs. qualified plans like an IRA or 401(k).

Here are some benefits of whole life insurance vs. 401(k):


With your whole life insurance policy, your money is built by hedging against market volatility. However, 401(k) funds are based in the market and are exposed to risk. The Volatility Buffer Strategy allows you to use the cash value of your whole life insurance policy for income in the time after a market slump gives your 401(k) the time required to restore its value without lasting repercussions to your retirement benefits.


Instead of saving for retirement within a 401(k), life insurance permits your money to gain a steady return rate with the passing years. You don’t have to worry about your money being lost due to market fluctuations. A 401(k) plan doesn’t guarantee a rate of return, fees, income, or future balance. On average, the return rate on a whole life insurance policy is approximately 4-6%, with the very little risk associated. The cash value in your 401(k) could increase, but the stock market could crash as it did before and leave you with an overall loss.


Funds inside of a 401(k) can’t be accessed before the age of 59 and a half. If you need your money sooner, you’ll be charged a 10% penalty on top of the taxes you’ll owe the IRS. On the other hand, whole life insurance comes with a cash value (liquidity) that can be essentially used at any time. Interestingly, you can access this liquidity from a properly structured policy without forfeiting your policy’s value. You can also borrow up to the amount of cash value in your policy tax-free. However, the insurance company will use your policy as collateral if you pass away with an outstanding loan.


Except for a Roth IRA, 401(k) and IRA are paid for with pre-tax dollars. The reality is that you don’t really control your retirement savings. The IRS regulates how much you’ll need to spend during your retirement. Your after-tax dollars pay for whole life insurance premiums. Paying taxes in advance ensures you won’t get hit with a huge tax bill later.

Additionally, the tax benefit of life insurance vs. 401(k) includes growing tax-free interest and dividends. Since your whole life policy is a private contract between you and your insurer, funds inside whole life insurance are provided with unique asset protections. They are generally not subject to probate and cannot be seized as part of bankruptcy filings or legal judgments.


To enable you to leave a sufficient amount of cash value to your heirs, life insurance offers you a death benefit. You can leave this amount to your spouse, your children, distribute it among several beneficiaries, or put the money in a trust to be used for your future generations. While a 401(k) may have leftover funds that can be passed on to family, it is fairly common for people to run out of funds during their lifetime. With whole life insurance, you’re guaranteed death benefits (minus any unpaid policy loans) that go to your beneficiaries tax-free. The whole life insurance policy is structured to enable you to enjoy the policy benefits during retirement and protect the death benefit for your beneficiaries’ future use.

The benefits of life insurance as compared to investing in 401(k) are undeniable. Smart people get a life insurance retirement plan. The experts at Pittman Insurance Group, LLC are available to discuss and clarify any questions you might have about investing in Life Insurance vs. Investing in 401(k). Contact us right now to get answers from our experienced representatives.

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