Whole life insurance calculator

What does a whole life policy really do?

Put in a policy and watch it year by year: what you pay in, what the cash value is worth, what your family would get, when it breaks even and what it earns. Then see the classic alternative side by side: buy cheaper term insurance and invest the difference.

Your policy

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1 The policy

Age when you buy it Pay premiums until age Show to age

Premium per year Death benefit

2 How the cash value grows

Guaranteed growth (% a year) Dividend (% a year, not guaranteed)

Dividends Paid-up insurance per $1 of dividend

Paid-up additions are small, fully paid policies bought with each dividend. They add cash value and raise the death benefit. Younger buyers get more insurance per dollar.

3 Costs inside the policy

The share of each premium that pays commissions, the cost of the insurance and the company's expenses, rather than building cash value. Costs are heaviest early, which is why cash value lags at first.

Year 1 (%) Years 2–10 (%) After year 10 (%)

4 Compare: buy term and invest the difference

Term premium per year Term length (years)

Investments earn (% a year) Taxes and fees on them (% a year)

Each year you'd pay the whole life premium either way: the term premium buys the same death benefit for the term, and the rest goes into investments. When the term ends, only the investments are left.

Every rate here is an example, not a quote. Real policies set costs by age, health and insurer. Ask for the insurer's illustration and put its numbers in.

How whole life works

Premiums

You pay a level premium, often until a set age, when the policy is "paid up". After that it keeps growing with nothing more to pay.

Cash value

Part of each premium builds a cash value that grows at a guaranteed rate. You can borrow against it or surrender the policy for it. The first years go mostly to costs, so it starts slowly.

Dividends

Mutual insurers pay dividends when they do well. They aren't guaranteed. Used to buy paid-up additions, they compound both the cash value and the death benefit.

The death benefit

Paid to your family, generally free of income tax, whenever you die. Term insurance covers only the years of the term, but costs much less.

About the author

The Cash Flow River was created by Rick Darvis, CPA, CCPS

Rick Darvis always showed families the numbers inside a whole life policy, year by year, before they bought one. He founded the National Institute of Certified College Planners, co-authored the AICPA's guide Paying for College, wrote The College Solution, and has taught tax and college planning at CPA and CFP® conferences in more than 40 states.