The 702(j) Retirement Plan: Why I have no love for insurance companies

John Robinson |

FPH Views on Insurance Companies' Tactics

As a financial planner, I realize the important role insurance companies play in society in helping people pool and manage various life risks, such as the risk of your house burning down, the risk of dying prematurely, the risk of being sued, etc.

However, over 30+ years as a financial advisor, I have found the old adage that most insurance is sold rather than bought to be generally true. To put it bluntly, it bothers me a great deal that, in this day and age, it is still okay to use misleading jargon and deception to present insurance products as something they are not in order to make a commission-based sale.

How Insurance Companies Present Options and Benefits

As a simple example, many mutual insurance companies tout “tax-free dividends” as a benefit of purchasing permanent life insurance. In truth, life insurance dividends represent nothing more than a partial return of an overcharged premium.

Calling it a “dividend” is inherently misleading and fosters obvious confusion with stock dividends. For better or worse, “dividends,” have been part of the life insurance industry lexicon for generations and will likely continue to be as long as mutual insurance companies continue to exist.

In my opinion, another more insidious example of misleading insurance sales terminology includes the life insurance industry’s promotion of employer-sponsored group universal life policies as “Supplemental Roth Accounts.” Despite the name, these are insurance policies, not accounts, and the policies are completely unrelated to the section of the IRS code that covers Roth IRAs and Roth 401(k)s.

Similarly, the insurance industry’s recent promotion of the “702(j) Retirement Plan” is abominable. As described in a recent article in, “It’s not an investment vehicle. It’s a life insurance contract governed by Section 7702 of the U.S. Code, which lays out the rules for life insurance contracts. The term 702(j) is simply marketing speak, possibly designed to make the 702(j) plan seem more like a retirement plan in the vein of a 401(k) or a 403(b).”


J.R. Robinson is the owner and founder of Financial Planning Hawaii and a co-founder of software maker Nest Egg Guru.

Important Disclosures

The information contained herein is general in nature and should not be construed as client-specific tax or legal advice. Neither Financial Planning Hawaii nor J.W. Cole provides client-specific tax or legal advice. All readers should consult with their tax and/or legal advisors for such guidance in advance of making an investment or financial planning decisions with tax or legal implications.

Securities offered through J.W. Cole Financial, Inc. (JWC) member FINRA/SIPC. Advisory services offered through Financial Planning Hawaii and J.W. Cole Advisors, Inc. (JWCA). Financial Planning Hawaii and JWC/JWCA are unaffiliated entities.

Fee-only financial planning services are provided through Financial Planning Hawaii, Inc, a separate Registered Investment Advisory firm. Financial Planning Hawaii does not take custody of client assets nor do its advisers take discretionary authority over client accounts.