If you’ve spent any time on TikTok or Reddit lately, you’ve probably seen influencers promoting a bold claim: Life insurance is a better investment than a 401(k). But is there any truth to that?
Let’s break down the facts and separate hype from reality.
Life Insurance vs. 401(k): What’s the Difference?
First things first: Life insurance is not an investment. A 401(k), on the other hand, is a retirement investment account typically offered by employers. It’s designed to grow over time through contributions and market-based investments.
Certain types of permanent life insurance, like whole life or universal life, do have a cash value component that can grow over time. However, this shouldn’t be confused with the kind of long-term investment growth you’d expect from a 401(k).
“It was very strange to me that there were so many life insurance salespeople all over TikTok, basically soapboxing about life insurance like it was the most amazing investment on Earth,” says Vivian Tu, founder of Your Rich BFF, a financial education platform on TikTok.
Can Life Insurance Grow Like an Investment?
Some life insurance policies offer the ability to grow cash value by linking returns to market indexes like the S&P 500. But these returns can be limited, capped, or based on complex formulas. In many cases, the insurer controls how much of that market performance is passed on to you—and it’s rarely the full amount.
While influencers may claim insurance-based returns are “immune” to market downturns, that’s not entirely true. Why Are TikTok Influencers Pushing Life Insurance Over 401(k)s? Insurance companies often invest your premiums in the market—you’re just not seeing the direct benefit.
The Real Cost: Fees That Drain Your Returns
This is where things get tricky.
Life insurance policies come with steep fees—administrative costs, agent commissions, and other charges. These costs often eat up your premiums, especially in the first 7–10 years of the policy.
Here’s how it works:
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Early on, most of your premium goes to fees and insurance costs, not savings.
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It can take a decade or more before your cash value starts building in a meaningful way.
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Even then, the return is typically lower than what you’d get with a 401(k) or even a high-yield savings account.
Plus, if you try to access your money early, you may face surrender charges—hefty penalties for withdrawing funds. These fees can last up to 10–16 years, leaving you with little to nothing if you bail out early.
How Do 401(k) Fees Compare?
Compared to life insurance, 401(k) plans are much more transparent and cost-effective:
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Investment fees are usually less than 1%.
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Your contributions begin compounding immediately, with no waiting period.
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There are penalty exceptions for early withdrawals, including disability, birth of a child, or emergency expenses.
“The idea that 401(k) fees are higher than an insurance product serving as an investment—I don’t even know how you support that,” says Georgia Lee Hussey, a certified financial planner and founder of Modernist Financial.
The Complexity Behind Insurance Products
Insurance fees aren’t just high—they’re difficult to understand. Whole life and universal life policies are often called “black box” products because it’s nearly impossible to decipher where your money is going without digging deep into fine print and disclosure documents.
What’s more, many influencers pushing life insurance aren’t financial advisors—they’re insurance brokers earning commissions. Most are not fiduciaries, which means they’re not legally obligated to prioritize your best interests.
“When you actually look into it, you realize that all of these people are, in fact, life insurance brokers,”Tu says. “They don’t even work at the insurance companies—they just sell the policies.”
Final Thoughts: Should You Invest Through Life Insurance?
At the end of the day, life insurance is meant to provide financial protection—not build wealth. While some policies include investment-like features, they’re usually more expensive, more complex, and less rewarding than traditional retirement accounts like 401(k)s or IRAs. Why Are TikTok Influencers Pushing Life Insurance Over 401(k)s?
Bottom Line:
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Life insurance can be a financial tool—but it’s not a substitute for a retirement plan.
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401(k)s offer better returns, lower fees, and clearer benefits.
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If it sounds too good to be true—it probably is.
As Vivian Tu puts it: “It’s insurance. It’s not an investment.”
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