Term Life vs Whole Life
"Buy term and invest the difference" is the textbook advice. This calculator runs the numbers honestly — most of the time the textbook is right, but not always.
Your scenario
Term + invest the difference
Buy term insurance. Invest the difference (whole − term premium) into your own brokerage account each month.
Total premiums paid (over term)
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Invested side-account at end of term
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Net position at end of term
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Death benefit during term
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Whole life
Pay the whole-life premium. Build cash value at the insurer's rate. Coverage lasts forever (as long as you keep paying).
Total premiums paid (over term)
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Cash value at end of term
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Net position at end of term
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Death benefit during term
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The two products
- Term life is pure insurance. Pay X per month for Y years; if you die during the term, the policy pays the death benefit. If you don't, the policy expires with no value. Cheap precisely because the insurer's expected payout is low (most people don't die in their 30s or 40s).
- Whole life is insurance + a savings account. A portion of each premium goes to coverage, the rest builds "cash value" inside the policy. Coverage lasts forever (as long as you pay), and you can borrow against the cash value. Premiums are 10–15× term for the same coverage.
Why "buy term, invest the difference" wins for most people
The cash value inside a whole-life policy grows slowly (3–5% typical, after fees). A simple S&P 500 index fund has historically returned ~7% real. Over 20+ years, the gap compounds dramatically. And term policies cover the years when you most need coverage (kids at home, mortgage outstanding) — exactly when you're earning enough to invest the difference.
When whole life can make sense
- Estate planning for the wealthy. Above the federal estate tax exemption, whole life death benefits pass to heirs free of income tax — a way to transfer wealth efficiently.
- People who can't or won't invest the difference. The forced savings of a whole-life premium beats an empty brokerage account. (But only if you'd genuinely have spent the money otherwise.)
- Permanent insurance need. A special-needs dependent, a closely-held business succession, etc. Term will eventually expire; whole life won't.
What this calculator can't see
Whole-life policies have a surrender period (typically 10–15 years) during which cash value is much less than premiums paid. Most policies have illustrations that show optimistic returns based on dividend assumptions that may not materialize. If you're considering whole life, get an in-force ledger and ask the agent to show guaranteed (not projected) values.
FAQ
What about indexed universal life (IUL)?
IUL is whole life with cash value tied to a market index (with caps and floors). Marketing promises stock-like growth with no losses. Reality: caps limit upside, fees eat returns, and lapse risk is real. Most analysts treat it as more aggressive whole life, not as competitive with direct investing.
How much term coverage do I need?
Common rule: 10× annual income, plus enough to clear the mortgage and fund kids' education. A 35yo earning $100k with a $400k mortgage and two young kids might need $1.5M–$2M of coverage.
What happens after the term expires?
If you die after the term expires, no death benefit. By then, the idea is: kids are grown, mortgage is paid off, you've accumulated enough assets that your family doesn't need a life-insurance payout. If you'd still need coverage at 60+, look at "guaranteed universal life" — a hybrid that's cheaper than whole but lasts longer than term.