Term vs whole life — what's the real deal?
Someone is trying to sell you whole life insurance. Before you sign, run their numbers through this calculator — it shows the return they won't put on the illustration.
The number your insurance agent doesn't want you to see
If you're here, someone probably quoted you a whole life policy and the premium made you flinch. Good instinct. Whole life policies bundle two products: term-like insurance + a tax-advantaged savings account. They're sold as "permanent insurance with a guaranteed cash value." The argument against them is simple:
- Buy term insurance for the years you actually need coverage (kids growing up, mortgage being paid off). This is much cheaper.
- Invest the difference (whole premium − term premium) in a Roth IRA or taxable brokerage.
- If your insurance need ends with the term (kids grown, mortgage paid — that's the assumption this calculator makes), you're left with an investment account that almost always exceeds the whole-life cash value. If you'll still need coverage after the term, price a longer term or a renewal first — that changes the math.
When whole life actually makes sense
- Estate planning above the federal exemption ($15M per person in 2026, under the OBBBA). The death benefit is income-tax-free and can pass outside the estate with proper trust structure.
- Special-needs dependent with a lifelong support need — coverage that doesn't expire matters.
- Pure liquidity for an illiquid estate (family business, ranch) needing instant cash at death to pay estate tax.
For everyone else: term + Roth wins on math, often by an enormous margin. If you're weighing this alongside retirement timing, the Social Security calculator and Roth conversion calculator complete the picture.
Common questions
Is whole life insurance ever worth it?
For most people, no. Term + investing the difference wins by a wide margin. Whole life can make sense for estate planning above the $15M-per-person federal exemption (2026, under the OBBBA), special-needs dependents, or illiquid estates needing instant cash at death.
What is the real return on whole life insurance?
This calculator reverse-engineers it from the agent's illustration. Typical effective returns on whole-life premiums are 2-4% — well below the 7% historical market return. The gap is what you're paying for the bundled insurance.
What does 'buy term and invest the difference' mean?
Instead of paying $6,000/year for whole life, buy a $500/year term policy and invest the remaining $5,500 (about $458 a month). After 20 years at 7%, that invested difference grows to about $239,000 — versus an illustrated cash value of around $147,500 (a ~2% return on premiums) in our default example, a gap of roughly $91,000 before taxes.