Free tool
Term vs Whole Life Calculator
Same death benefit, two ways to pay for it.
Buying term and investing comes out ahead by
$44,502
After 20 years. The invested difference passes the cash value in year 7.
- Invested each yearWhole premium less term premium
- $5,400
- Whole life premiums paid
- $120,000
- Term premiums paid
- $12,000
- Invested difference at the end
- $210,561
- Cash value at the end
- $166,059
When the term ends, the term buyer has no cover left; the whole life policy still has its death benefit. Use the cash value rate from a real illustration: early cash values are often lower.
Someone weighing a whole life quote often hears: buy term and invest the difference. This free InsureCard calculator tests that advice with your numbers. It invests the premium you would save each year, grows the whole life cash value beside it, and shows which comes out ahead and when.
Updated
The formula
Invested(t) = (Invested(t − 1) + whole premium − term premium) × (1 + investment return)
Cash value(t) = (Cash value(t − 1) + whole premium) × (1 + cash value return)
Premiums are paid at the start of each year. The investment return should be after fees and tax; the cash value return is the rate of return on premiums shown in the whole life illustration, after the policy's own costs.
The comparison runs for the term's length, when the term cover ends.
A worked example: $6,000 or $600 a year
A whole life policy costs $6,000 a year; a 20-year term policy with the same death benefit costs $600. Buying term frees $5,400 a year to invest at 6%.
With the cash value growing at 3%, after 20 years the invested difference is $210,561 and the cash value $166,059. Buying term and investing is ahead by $44,502, passing the cash value in year 7.
What the numbers leave out
When the term ends, the term buyer has investments but no cover, and new cover will cost more at an older age. The whole life policy keeps its death benefit for life.
The plan also depends on investing the difference every single year. Whole life's premium makes saving automatic, and its cash value growth is set by the contract.
Where to find the cash value rate
Ask for the policy illustration. It shows the guaranteed and the non-guaranteed cash value for each year. The NAIC's Life Insurance Buyer's Guide explains how to read one and compare policies.
Early cash values are usually low, because the policy's costs come first. Try the guaranteed figures as well as the illustrated ones.
Questions
Is it better to buy term and invest the difference?
It can be, if you invest the difference every year and earn more than the cash value grows. Whole life suits someone who wants cover for life and forced saving. Run your own premiums and rates to see which wins for you.
What happens when the term ends?
The cover stops. You keep whatever you invested, but buying new cover later will cost more, and health changes can make it harder to get. Some term policies can be converted to permanent cover without a medical exam.
Does it include tax?
Enter the investment return after the tax you would pay. Whole life cash value usually grows tax-deferred, so a taxed investment needs a higher return to keep up.
Sources
- NAIC: Life Insurance Buyer's Guide (checked )