Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insur...

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Reviewed by Leslie Kasperowicz
Farmers CSR for 4 Years

UPDATED: Aug 25, 2021

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The Brief

  • The top investment options for retirement include 401(k) vs. indexed universal life
  • The right indexed universal life insurance policy can offer more flexibility than a 401(k), but this isn’t always the case
  • An indexed universal life insurance policy tends to be more accessible than a 401(k)

For those looking for the best retirement solutions, comparing a 401(k) vs. indexed universal life insurance could be helpful. Analyzing permanent life insurance, like whole life insurance costs, could help you save more.

Everyone wants to earn as much money as possible. To help you make an informed investment decision, we’ll break down indexed universal life insurance (IUL) policies, how they work, and more.

You’ll have everything you need for comparing 401(k) vs. indexed universal life insurance in just a few minutes. Until then, use our free quote tool to get personalized rates from top insurers near you.

What is a 401(k)?

A 401(k) is another retirement solution that can be presented in different ways. Most commonly, a 401(k) is offered to workers by their employers.

Like an IUL policy, a 401(k) is designed to help you slowly accrue funds that can be accessed near or during retirement. These funds are acrrued through a percentage of each paycheck you earn.

A 401(k) can be a safe and effective way for you to generate a comfortable savings account. These accounts are often less susceptible to market fluctuations while continuing to provide some tax advantages.

If you’re lucky, your employer will also contribute to your 401(k). This means that for every dollar you put into your 401(k), your employer will add a little extra. Most of the time, this is only $0.50 per dollar, but every bit counts.

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What is indexed universal life insurance?

Indexed universal life insurance is a type of permanent life insurance. More specifically, indexed universal life insurance policies are variants of a traditional universal life insurance policy. These are just a few of the common types of life insurance.

A universal life insurance policy is often coveted due to flexible payments, accrued cash value, and tax advantages. An IUL policy differs in that it “indexes” year by year. The video below explains how IUL policies work.

In short, those indexes are basically new thresholds that provide policyholders added security. While a traditional life insurance policy can be entirely subject to market fluctuations, IULs have higher benchmarks each year.

401(k) vs. Indexed Universal Life: Which is better for retirement savings?

Comparing different retirement solutions is a great step towards having a happy and healthy retirement. It’s hard to choose between stocks, IRAs, bonds, and the vast assortment of other investment options.

It’s important to know the basics before you rush to buy a 401(k) or indexed universal life insurance policy. Both policies are fairly straightforward once you know what each has to offer.

Is an IUL policy better than a 401(k)?

There’s no black and white answer regarding whether an IUL policy is better than a 401(k), or vice versa.

There are a variety of 401(k) and indexed universal life insurance pros and cons that should be considered before making that decision for yourself.

401k vs. Indexed Universal Life
Characteristics401kIndexed Universal Life
Investment Tool:YesYes
Guarantees Provided:NoNo-lapse guarantee, death benefit guarantee, and additional riders to personalize policy
Contribution Caps:Employee and employer contributions are capped per yearUnlimited contributions
Policy Comprehension:Fairly straightforward and easy to understandDifficult to understand due to riders, options, and numerous pages - insurance agent recommended
Tax Treatment of Investments:You must wait until 59-1/2 to withdraw, and then must take monthly withdrawals after thatCash value taxed with initial contributions, so can be accessed at any time without a tax penalty
Distribution at Death:All 401(k)s are subject to probate processListed beneficiaries receive death benefit
Receive Employer Match:Yes, employer contribution of a specific percentage to a capped amount each yearNo
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As a whole, both policy types have some good and some bad points. The contract for a 401(k) tends to be easier to comprehend but it has less flexibility when compared to an IUL policy.

Realistically, the contracts will be the major difference between the two. Indexed universal life insurance policies have varying costs based on contribution amount, health status, age, gender, and much more.

The 401(k) and indexed universal life insurance rates differ considering a 401(k) will simply be a percentage or pre-approved amount deducted from each paycheck until you reach a yearly cap, if applicable.

In general, an affordable 401(k) or indexed universal life insurance policy will be available if you start with smaller contributions.

Comparing 401(k) and indexed universal life insurance quotes will give you more accurate figures to work with based on your health, income, and contributions.

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Is indexed universal life insurance good for retirement? With the right company, an indexed universal life insurance policy can be a great asset for retirement.

The policies can be more flexible than a 401(k) if you are mindful during the underwriting process.

A 401(k) is much simpler, but there are many restrictions to accessing and contributing to a 401(k), especially if you change employers.

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What are the 401(k) and indexed universal life insurance pros and cons?

Retirement is important to consider early on. According to the National Association of Insurance Commissioners (NAIC), only 54% of Baby Boomers have any retirement savings at all.

There are many competitive options available, including a 401(k) or indexed universal life insurance. Below, we’ll highlight the key pros and cons relating to each policy type for your reference.


  • Uncapped earning potential (indexed universal life)
  • Possible employer contributions (401(k))
  • Easy access to cash value (indexed universal life)
  • Tax benefits while accruing (both)


  • Large variance from policy to policy (indexed universal life)
  • Difficulty accessing contributions (401(k))
  • Cap on earnings (401(k))

Collectively, each person’s situation is different and should be treated as such when determining which retirement solution is the most appropriate. An IUL policy is typically better for younger adults that won’t get employer contributions.

A 401(k) is ideal for those who do receive employer contributions. In essence, these added contributions supplement your salary to help provide a healthy retirement fund. These policies and payouts aren’t guaranteed, however.

401(k) vs. Indexed Universal Life: The Bottom Line

Indexed universal life insurance policies are competitive with a traditional 401(k). For those that have a trustworthy insurer, it could be worthwhile to invest in an IUL policy. It’s hard to ignore 401(k) employer contributions, however.

We hope you enjoyed learning more about 401(k) vs. indexed universal life insurance retirement options. Before you go, use our free quote tool below to get personalized life insurance rates from providers near you.