Comparing a 401K to a IUL

Oct 12, 2017

  1. SamIam
    Offline

    SamIam Guru

    Posts:
    1,076
    Likes Received:
    2
    Isn't it disingenuous when agent compares a 401K investing in a market compared to an IUL. They never mention in the comparisons that sometimes the mutual funds are getting dividends and the IUL isn't. Don't get me wrong I like the IUL I just think it's misleading because they don't mention it at least in the webinars I have attended/
     
    SamIam, Oct 12, 2017
    #1
  2. jboussea
    Offline

    jboussea Guru

    Posts:
    565
    Likes Received:
    42
    Your probably means comparing it to stocks in a 401k

    I've seen it done incorrectly.. I've seen it done correctly... They are different types of assets.(.if we're talking about Stocks and bonds in a 401k) ...

    you're probably better off having both...as long as you know which bucket each asset belongs to.
     
    jboussea, Oct 12, 2017
    #2
  3. DHK
    Offline

    DHK "YOU CAN'T HANDLE THE TRUTH!"

    Posts:
    7,478
    Likes Received:
    1,201
    State:
    California
    Webinars are not compliance approved when they're for agents educational purposes.

    Accuracy and compliance is your job. Unless they are training you in a company presentation (versus agent education), it's not the company's fault.

    Anything can be compared to anything, as long as it is done accurately. Can I compare owning rental property to a 401(k)? Sure, why not? As long as I'm doing it accurately and completely.

    I created a comparison worksheet on 24 different points comparing "investment grade" over-funded permanent life insurance to 401(k)/IRA, Roth IRA, 529 plans, and Mutual Funds (brokerage). I also created a similar comparison worksheet on 24 different points comparing permanent life insurance to owning a home. And no, I'm not sharing that here.

    Now, it's important to note that an IUL is NOT a security while the investment allocation within a 401(k) account is most often with securities of various kinds. But they are both assets/accounts/policies that simply function differently than each other.

    I know that *I* am prepared to compare/contrast these things all day long.
     
    DHK, Oct 13, 2017
    #3
  4. walthamny
    Offline

    walthamny Guru

    Posts:
    448
    Likes Received:
    57
    State:
    Massachusetts
    Actually, in theory, the dividends are not for sure either. All the companies in SP 500 could choose not to pay dividends anytime. I don't see this happening but lets say in 20 years the tax reform changes everything and companies realize it is better not to pay dividends.

    The issue you mention is common in the financial world. You are basically comparing the returns of two things and you are not accounting for some major factors. Happens all the time.

    After 2008, all whole life companies had brochures looking at the return of the stock market in the 1988-1998 period and implying whole life outperforms the market all the time. Brokers who recommend IPO's will frequently take the return of one IPO over the last year and imply it applies universally to any future stock a client would purchase from them.
     
  5. scagnt83
    Offline

    scagnt83 Worldwide Expert of Everything

    Posts:
    6,879
    Likes Received:
    375
    State:
    South Carolina
    If an agent is getting into this comparison with a client then they are just asking for trouble.

    The big question about those comparisons is are they including the company match and the pre-tax basis of contributions??

    Accounting for pre-tax contributions: $10k into an IUL would have been $12k into a 401k.

    Throw in a company match at 50%, that bumps it to $18k into a 401k for every $10k into an IUL.

    Then there is the issue that most agents selling IUL are not securities licensed. So the situation gets even shadier if they are with clients.

    Generally speaking, an IUL should be a supplement to a 401k if the client has one. Not a replacement.
     
    Last edited: Oct 13, 2017
    scagnt83, Oct 13, 2017
    #5
  6. eersfan
    Offline

    eersfan Super Genius

    Posts:
    200
    Likes Received:
    69
    Any of you remember the "Person Pension Plan" debacle of many years ago where agents got busted selling over-funded permanent insurance?
     
    eersfan, Oct 13, 2017
    #6
  7. toehill
    Offline

    toehill Super Genius

    Posts:
    193
    Likes Received:
    1
    State:
    Arizona
    An IUL is life insurance 1st and foremost.
     
    toehill, Oct 18, 2017
    #7
  8. eersfan
    Offline

    eersfan Super Genius

    Posts:
    200
    Likes Received:
    69
    As is VUL.
     
    eersfan, Oct 19, 2017
    #8
  9. paulallred
    Offline

    paulallred Expert

    Posts:
    63
    Likes Received:
    6
    State:
    Maryland
    Dividends are not guaranteed nor predictable.
    What is truly disingenuous is how 401 k plans don't disclose ALL the fees they charge which obliterate the growth of a 401k plan.
     
  10. scagnt83
    Offline

    scagnt83 Worldwide Expert of Everything

    Posts:
    6,879
    Likes Received:
    375
    State:
    South Carolina
    By law (IRC code 408(b)(2)) 401k Plans are required to disclose ALL fees on a single document. That document is:
    1. Initially given to employee upon signing up
    2. Mailed to their home once per year (separate from quarterly or annual statements)
    3. Mailed to them whenever there is a change to those fees.


    And depending on the type of Shares owned of a Stock, Dividends can be guaranteed.

    Historically speaking, there are many companies in the US that have paid dividends consistently for decades. Similar to how Mutual WL carriers have paid dividends year after year after year for decades (obviously the insurers have a longer record of it).

    Caps on IULs are not guaranteed.
    Current expenses on IULs are not guaranteed.
    Dividends on WL are not guaranteed.


    What is really disingenuous is when insurance agents try to compare IUL to a 401k plan and fail to account for the pre-tax status of contributions to the 401k. Ive never once seen an agent account for that aspect (which always throws their rosy numbers way off if they do).
     
Loading...