Buy term and invest the difference calculator

How to use it

1. Enter the yearly premium for a whole life quote and the yearly term premium for the same death benefit.
2. Enter the number of years to compare. Match it to the term length.
3. Enter the return you assume on the invested money and a yearly drag for taxes and fees. Use 0% for a Roth IRA or 401(k), more for a taxable account.
4. Optional: enter the whole life cash value at that year from the insurer's illustration. Try the guaranteed column first, then the non-guaranteed one.

How the math works

The tool invests the premium difference at the start of every year and lets it grow:

• Yearly difference = whole life premium − term premium.
• Net return = assumed return − yearly drag for taxes and fees.
• Balance at the end of each year = (previous balance + difference) × (1 + net return).

If you enter a cash value, the tool also solves for the net return at which the investment would end at exactly that amount, and says which side finishes ahead and by how much.

Hypothetical example, using the tool's starting values: whole life at $6,000 a year, term at $500 and 20 years. The difference is $5,500 a year, or $110,000 paid in. At 6% less a 1% drag, the balance is about $190,956. If the illustration showed a $150,000 cash value in year 20, the investment would need a net return of about 2.9% to match it, and at the assumed 5% net it would finish ahead by about $40,956. Those figures describe the example only.

What it assumes

• Both premiums stay level for the whole period, and you pay the full difference into the account every year.
• The return is a steady rate. Real markets are not steady, and the order of good and bad years changes the result.
• Taxes and fees are one flat percentage taken from each year's return.
• The cash value is whatever you type. The tool does not compute it or check it against an illustration.

Where it stops being right

• It compares savings only. After the term ends, term coverage ends, while whole life continues for life. The tool does not price the cost of replacing coverage later at an older age or in worse health.
• The two death benefits must match for the comparison to be fair, and the term premium should be for the same amount.
• It tests one year at a time. Whole life cash value tends to be low in early years and larger later, so check several years, such as 10, 20 and 30.
• Guaranteed and non-guaranteed values differ. The guaranteed vs non-guaranteed values in a policy illustration guide explains what an illustration shows.
• It ignores policy loans, dividends taken in cash, and the way cash value growth is taxed.

The discipline matters as much as the arithmetic: the result holds only if the difference really is invested every year. Read buy term and invest the difference: does it hold up for the full argument on both sides, and term vs whole life insurance: which fits you for the product comparison. The return of premium term calculator runs a similar test on a different term product.