IUL Versus 401k for retirement

If you’re thinking through long-term investment opportunities, you may be wondering which investment strategy is better – an IUL (Indexed Universal Life) or 401k. Regardless of where you are in your investment process, both vehicles will help you grow investments toward retirement. But they are essentially different vehicles – one an insurance policy and another a traditional investment strategy – and as such are structured very differently and offer different benefits.

Quick Summary of an IUL vs a 401k

IUL (Insurance Policy)401k
Provides tax-free growthxx
Invested in index or mutual fundsxx
Taxed in retirementx
Subject to market volatility (no caps or floors)x
Living benefitsx
Age restrictionsx
Required minimum distribution at 72x
Available for loansxx

What is an IUL

An IUL is, at its heart, a life insurance policy that provides a death benefit when you pass. But an IUL offers other advantages as well. The cash value, derived from a portion of your premium, can follow a market index such as the S&P 500, typically growing at 6-7% a year. An IUL has both a cap; which means it cannot grow more than a certain percentage, as well as a floor of zero. This effectively means it cannot lose value as long as premiums are paid.

How can I utilize an IUL?

As that cash grows, you can borrow against it for a loan, typically at reasonably low-interest. These loans are not considered income, so they are not taxed. Furthermore, repayment on a loan against an IUL is not required; instead, the value will be deducted from your death benefit when you pass. And the amount you borrow is still considered part of the loan principal, so the policy can continue to grow as if the cash were still there. Because of this, IULs can be used for things like college expenses, emergencies, or real estate investing.

What is a 401k

A 401k is an investment option provided by employers. When you invest in a 401k, that money is not taxed prior to being invested. A 401k has a wide array investments such as mutual funds, stocks, and bonds. Some employers offer matching contributions to a 401k. A 401k is subject to limits; for 2024 that limit is $23,500 (or $30,500 for those aged 50 and older)

IUL vs 401k for Retirement – How Do They Compare?


Because of the variety of investment options, a 401k can be structured much more aggressively than an IUL. And a 401k, unlike an IUL, pays dividends that are reinvested for further growth. These factors make the growth potential very aggressive for a 401k, making them a good tool to build wealth more quickly than an IUL. Most importantly, some employers offer a 401k match, which can provide those saving for retirement with a huge leg up.

However, because a 401k does not have a floor, it’s growth is subject to market volatility in both directions.

An IUL, conversely, has a floor of zero, but growth on most policies is also subject to caps, so while it cannot grow aggressively, it cannot lose money.


Loans against a 401k can be taken if allowed by the terms of the plan. Every employer’s plan is different. Depending what the plan allows, you may typically borrow as much as 50%, though not more than 50k within a certain period of time. These loans are not subject to penalties or taxation, though they must be paid back with interest within a 5 year time frame. While the money is withdrawn, your account will only grow agains the capital that remains in the plan. Additionally, if you leave your employer you may have to repay the loan in full.

Loans against an IUL can be taken at any time, and are not restricted by the terms of the policy. There are also no limits to the amount you can borrow against an IUL, though the policy will typically need time to mature to have a viable amount of money to withdraw. Like 401ks, loans are not subject to taxation, but unlike a 401k one of the enormous benefits of loans against an IUL is that they actually do not require repayment in any specific time frame. If the loan is still outstanding at the time of your death, the value is taken against the death benefit.


Contributions to a 401k for 2024 are up to $23,000 for those under 50, and $30,000 for those age 50 and older.

Contributions to the cash component IUL are constrained by the death benefit of the policy. Speak to an experienced agent to learn more.

No retirement strategies are mutually exclusive, so you can of course leverage both, and a blend of the two offers great stability in retirement. If you’d like to learn more, please call Danny at 512-922-1273 or schedule a time to speak. Danny has written IUL policies for hundreds of individuals and can provide you with expert guidance on setting up the best policy for you.

The investing information provided on this page is for educational purposes only. Gallant Life Insurance does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.