Comparing a 401K to a IUL

Oct 12, 2017

  1. SamIam
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    SamIam Guru

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    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/
     
  2. jboussea
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    jboussea Guru

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    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.
     
  3. DHK
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    DHK I Am Not Your Guru

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    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.
     
  4. walthamny
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    walthamny Guru

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    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
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    scagnt83 Worldwide Expert of Everything

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    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
    Fredericktx likes this.
  6. eersfan
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    eersfan Expert

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    Any of you remember the "Person Pension Plan" debacle of many years ago where agents got busted selling over-funded permanent insurance?
     
  7. toehill
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    toehill Super Genius

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    An IUL is life insurance 1st and foremost.
     
  8. eersfan
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    eersfan Expert

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    As is VUL.
     
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