Whole Life Insurance Policy Calculator
Estimate your premiums, cash value accumulation, and death benefit growth.
Understanding Whole Life Insurance Calculations
Whole life insurance is a type of permanent life insurance that provides a guaranteed death benefit for the life of the insured, provided premiums are paid. Unlike term insurance, it includes a savings component known as "cash value." This calculator helps you estimate how your policy might perform over several decades.
How the Math Works
The premiums for whole life insurance are significantly higher than term insurance because they are designed to remain level for life and fund the cash value account. Insurance companies use actuarial tables to determine risk based on your age and health. A portion of your premium covers the cost of insurance (COI) and administrative fees, while the remainder builds cash value.
Dividends: Many whole life policies (specifically "participating" policies from mutual companies) pay dividends. While not guaranteed, these dividends can be used to purchase "Paid-Up Additions" (PUA), which increase both the cash value and the total death benefit over time through compounding growth.
A 35-year-old male in excellent health purchasing a $500,000 policy might pay approximately $650 per month. By age 55 (20 years later), he may have paid $156,000 in premiums, but his cash value could potentially be worth $180,000, and his total death benefit could have grown to $620,000 due to dividend reinvestment.
Key Components of the Policy
- Guaranteed Cash Value: The minimum amount the policy is guaranteed to be worth at any given year.
- Non-Guaranteed Dividends: Extra value paid by the insurer based on their profitability and mortality experience.
- Surrender Value: The amount you receive if you cancel the policy, which is the cash value minus any surrender charges.
- Policy Loans: Most policies allow you to borrow against the cash value, usually at a competitive interest rate.
Frequently Asked Questions
Are whole life insurance premiums tax-deductible?
Generally, no. For individuals, premiums are paid with after-tax dollars. However, the cash value grows tax-deferred, and the death benefit is usually paid out income-tax-free to beneficiaries.
What happens if I stop paying premiums?
Most policies have "non-forfeiture options." You may be able to use the existing cash value to convert the policy to a smaller "paid-up" policy or use the cash to pay premiums through an automatic premium loan until the value is exhausted.