Why TikTok influencers push life insurance over 401(k)
Considering your financial options? Find out why TikTok influencers appear to promote life insurance over 401(k).
TikTok has recently become a go-to platform for providing financial advice. Finance professionals have turned into content creators, sharing tips on maintaining cash flow, making investments, pensions and accumulating wealth.
In fact, it’s easy to see many TikTok influencers specifically recommending life insurance over the 401(k). However, some financial experts worry about suggesting this plan as a better alternative to the retirement account. Now, what’s the real score?
Fret not; This page seeks to understand why TikTok influencers push life insurance over 401(K) investments. Read on to learn their differences, weigh the pros and cons, as well as make informed financial decisions.
Understanding life lnsurance and 401(k)
Promoting life insurance over 401(k) has become a trend, taking the whole TikTok community by storm. However, many finance professionals argue that making a comparison between the two isn’t valid. They claim that it’s like comparing an apple to an orange.
Image source: TikTok
So, let’s draw the line between the two:
- Life insurance is a plan where you pay regular premiums. In return, the insurance company pays your beneficiaries money when you pass away. Some types, like whole life insurance, can also build up cash you can use while still alive.
- A 401(k) is a retirement account in which you save part of your paycheck before taxes, allowing it to grow over time. Many employers also match some of what you put in, making it a great way to build savings for the future.
As you can see, life insurance and 401(k) plans are two different things. While they are both vehicles for financial management, they have different purposes and functions. Learn more about their differences below.
Life insurance vs. 401(k)
To understand the differences between the two, let’s dig deeper according to:
- Monetary purpose: Life insurance mainly provides financial support to your loved ones if you pass away. Meanwhile, A 401(k) helps you save and invest for retirement.
- Investment potential: Some life insurance policies, like permanent whole life insurance, build cash value, but the returns are usually lower than other investments. A 401(k) offers more investment options and can grow significantly over time.
- Financial access: You can sometimes borrow from the cash value of a life insurance policy, but it reduces the payout to your beneficiaries. 401(k) funds are for retirement, and you may face penalties if you take them out early.
- Tax implications: Life insurance premiums get paid with after-tax money, but the payout is generally tax-free. 401(k) contributions are often tax-deductible, and the money grows tax-deferred until you withdraw it in retirement.
Find out why TikTokers opt for life insurance over 401(k) in the next section.
Why TikTok influencers favor life insurance over 401(k)
TikTok has become increasingly popular amid the possibility of the platform being banned in the U.S. This channel ranks fifth as the most-used social media channel globally after Facebook, YouTube, WhatsApp, and Instagram:
Leveraging TikTok to promote life insurance, whether term or whole life insurance, is a smart move. However, many influencers perpetuate the idea of it being a superior option to retirement accounts. That said, here’s why they favor life insurance over the 401(k):
1. Life Insurance provides cash value and loan
Life insurance, such as whole life and universal life insurance policies, builds cash value over time. It allows you to access and/or borrow this financial resource—an enticing benefit many TikTok influencers focus on. Meanwhile, these influencers contend that 401(k) plans let you wait until retirement to benefit from them.
Rain Yang, Founder and CEO of WoodenAve, has started investing in a life insurance policy, although he has already capitalized on a 401(k) plan. He explains his reason for doing so: “It gives you the option to borrow against the cash value whenever you need it. It’s like having a safety net you can tap into—a big draw for people looking for flexibility beyond traditional retirement accounts!”
2. Life Insurance offers flexibility and accessibility
Life insurance applications ensue after TikTok financial advisors market policies as something flexible. They claim that they give you access to the cash value while you’re still alive. On the other hand, they argue that 401(k) plans come with financial restrictions. They say that you aren’t allowed to have early withdrawals.
Roman Zrazhevskiy, Founder and CEO at MIRA Safety, seconds this motion. He has long invested in a life insurance policy due to its flexibility and accessibility. “It’s more versatile since you can borrow against the cash value whenever you need it. It lets you take control over your money without the strict rules of a 401(k).”
3. Life Insurance gives control over investments
TikTok influencers highlight the control you have over your life insurance investments. They explain that you can decide how you’re going to invest in your cash value. On the contrary, they point out that 401(k) plans don’t allow for personalization. Their investment options are limited only to the employer-chosen funds.
Take it from Gavin Yi, Founder and CEO of Yijin Hardware. He recommends investing in life insurance for financial control. He clearly explains, “With life insurance, you have more say in where your money goes. It gives you the freedom to choose a policy that fits your personal financial goals, unlike the preset options in a 401(k).”
What clients should know about 401(k) over life insurance
It’s best to bust myths about life insurance and focus on its benefits via the TikTok platform. However, insinuating that it’s better than the 401(k) is another story. The recent news doesn’t lie:
The truth is, influencers promote this idea because of one thing: They earn commissions for selling life insurance policies.
To take an objective approach, clients should also explore the potential benefits of retirement savings plans. That said, here’s why you should go for 401(k) over life insurance:
1. 401(k) is best as a retirement savings
A 401(k) plan is specifically designed for retirement savings, making it better suited for early retirement planning. With employer matching, tax benefits, and focused long-term growth, it’s a more straightforward option than life insurance, which has higher costs and lesser retirement-specific advantages.
Learn from Reyansh Mestry, Head of Marketing at TopSource Worldwide. Their company offers its employees 401(k) plans that are best suited to them. He argues, however, “While life insurance offers flexibility, a 401(k) is the go-to for early retirement planning. The tax perks and employer contributions make it a more focused, cost-effective way to grow your retirement savings.”
2. 401(k) offers clients some tax benefits
When it comes to investment taxation, a 401(k) has clear advantages over life insurance. Contributions to a 401(k) are often tax-deductible, and the money grows tax-deferred until retirement. Meanwhile, life insurance premiums are paid with after-tax dollars and don’t offer the same upfront tax benefits.
Chris Aubeeluck, Head of Sales and Marketing at Osbornes Law, suggests capitalizing on 401(k) plans due to their tax benefits. He expounds, “From a tax perspective, 401(k)s are hard to beat. The ability to reduce your taxable income now and let your investments grow tax-free is a big win compared to life insurance, which doesn’t offer the same level of tax benefits.”
Weigh up your financial options
It’s easy to see TikTok influencers pushing life insurance over 410(k) due to the commissions they can earn. But as a client, it’s vital to avoid the risk of unvetted financial advice and even fight misleading information on the platform. So consider the information discussed above.
The truth is, both options offer financial benefits, as discussed above. However, life insurance is a form of financial protection, while a 401(k) is an investment for retirement. So it’s like comparing an apple to an orange!
Further, you should be wary of their potential downsides. For one, life insurance is known for its complexity, high premiums, and exorbitant fees. Meanwhile, 401 (k) plans are thought twice due to their high management fees, withdrawal age restrictions, and tax payment requirements.
Ultimately, choose one best suited for your financial situations, goals, and needs. More importantly, read the fine print and understand all the terms and conditions applied. By doing so, you can make informed financial decisions.
