Whole Life Insurance Calculator: Everything You Need to Know

Thang Truong
Thang Truong
Updated on:

Whole life insurance is a bit tricky to understand, due to the fact it has both a cash value and a death benefit and both guaranteed and non-guaranteed. If you’re considering a whole life insurance policy, you need to figure out what your needs and goals are, and then calculate how much life insurance you need, how much cash value you will need, and how much it costs you.

Do I Need Whole Life Insurance?

The first question you need to answer is, do I need whole life insurance? Or will a 20 or 30-year term life insurance policy work for me?

Life insurance works to replace lost income if a primary breadwinner should die. This is why term insurance is generally only 20 or 30 years; after several decades, your children are on their own, you’ve saved enough money and invested in retirement accounts. At this point, you don’t need life insurance. If this is your situation, a term policy is much less expensive and does everything you need it to do. 

On the other hand, there are some situations where insurance is needed for your whole life. Some reasons are:

  • You have special needs children who are unlikely to achieve financial independence
  • You want to leave some money to your heirs
  • You are wealthy and need estate planning and a tax shelter
  • You want to withdraw from the cash value account to supplement your retirement income. Learn more how to use life insurance in retirement planning through a case study

You can use the cash value to help pay for college, or help your children get a good start in life. You may want to make sure your spouse is taken care of if you die later in life. 

Whole life insurance offers some benefits that term life insurance doesn’t cover. However, do these benefits justify the high cost of whole life? We don’t think so. We examined 4 real case studies to illustrate that whole life insurance is not a good investment.

>>MORE: Why is Whole Life Insurance Not Worth It?

How Much Whole Life Insurance Do I Need?

First, figure out how much of a death benefit you’ll need. Common uses for a death benefit include:

  • Funeral costs
  • College 
  • Paying off a mortgage
  • Retirement
  • Income replacement
  • Pay off debts

Obviously, you can’t predict when you’ll die, so you can’t predict how much life insurance you’ll need down to the penny. But if you calculate long-term financial obligations and then subtract your assets, you’ll be able to estimate. 

Some websites advocate for a simple formula, like ten times your annual salary. However, if you’re buying whole life insurance, this is probably inadequate, especially if special needs children are the reason you need whole life insurance. Consider what level of care the child will need, and how independent they might be as an adult. 

After you calculate all that, that will give you a rough estimate of the amount of life insurance you need. Keep in mind this is for your death benefit only. 

>>MORE: Is Whole Life Insurance Good for Retirement Savings? A Case Study

>>MORE: Indexed Universal Life Insurance (IUL) vs. Whole Life Insurance: Which is Better?

How to Calculate How Much Cash Value You’ll Need?

The cash value is the money you can withdraw from while you’re still alive. You can use this money to help finance a college education, pay off a mortgage, or help children put a down payment on a house. Depending on your need of cash in the future, you can calculate how much cash value you would need in your whole life insurance policy at some certain time in the future.

Some portion of cash value in whole life insurance policy is guaranteed and some is non-guaranteed (details explained below). Depending on the nature of your need of cash in the future, you can determine if you need that amount to be in guaranteed cash value account or it can be in non-guaranteed account.

Whole life insurance policies come with illustrations to show you how they build cash value over time, both guaranteed and non-guaranteed. For example, in a chart from Mass Mutual, the guaranteed cash value for a $300,000 policy is $48,510 and non-guaranteed amount is $63,645 after ten years.

Whatever whole life insurance policy you’re considering, ask to see the illustrations. Calculate what you might need the money for, but keep in mind if you withdraw from the cash value and don’t pay it back, it will reduce the death benefit. 

>>MORE: Understanding Indexed Universal Life Insurance (IUL) – Why Is It Good for Retirement Savings?

How is Whole Life Insurance Cash Value Calculated?

Whole life insurance cash value is a complex topic. It is often less understood. One of the reasons that makes it complicated is guaranteed and non-guaranteed cash value in a whole life insurance policy. Insurance companies, both mutual or stock, offer guaranteed cash value. This is an unique feature only available in whole life insurance. Guaranteed cash value in whole life policies grow at a guaranteed rate, usually at 2%.

If investment return rate, or usually called interest rate, of the cash value account is higher than guaranteed rate of 2%, the cash value amount is more. Since investment return is non-guaranteed, the higher cash value is also non-guaranteed. Based on the historical performance, insurance companies often provide their estimates for non-guaranteed cash value in their whole life policies’ illustrations.

In the case of mutual insurance companies, the higher investment return is reflected through the dividend payment to policy holders. And if policy holders decide to add dividend to cash value account of the policy and reinvest, it will grow cash value account further, despite being non-guaranteed. Based on historical performance, mutual insurance companies often provide their estimates for dividend payment in their whole life policies’ illustrations. Most, if not all, mutual insurance companies do pay dividend consistently.

Have a look at how guaranteed and non-guaranteed cash value are built over time in a whole life insurance policy issued by Penn Mutual, one of the leading mutual insurance companies.

>>MORE: Whole Life Insurance Cash Value: Everything You Need To Know

How to Calculate Dividends in Whole Life Insurance Policy?

The simple answer is you can’t calculate dividends in a whole life insurance policy. Dividends are not guaranteed and often at discretion of mutual insurance companies. However, in the policy’s illustrations, these companies usually provide their estimates of dividends to be paid out for the lifetime of the policy. These estimates are usually based on the historical dividend payments, so there is some basis of the estimates.

Similar to stock companies providing and adjusting their guidance of earning and dividend payment, mutual insurance companies also often provide guidance and changes of their dividend payment to their policy holders. Most mutual insurance companies have paid dividends consistently in the past 40-50 years.

>>MORE: Understanding How Dividend Paying Whole Life Insurance Works

>>MORE: A Guide to the Best Whole Life Insurance Companies

How to Calculate the Average Cost of Whole Life Insurance?

Whole life insurance is expensive, there’s no doubt about it. It’s up to ten to fifteen times as expensive as term insurance. Whole life insurance is also fairly complex. Because of this, you should work with a financial advisor or a life insurance broker who can shop around and find you the best rate. Many insurance companies don’t offer online quoting for whole life insurance. As a broker, we at BravoPolicy can help you compare whole life insurance quotes of multiple insurance companies. Start by clicking on the button on the banner below to provide some basic information to start.

If you go to an online term life insurance aggregators such as Policygenius or Quotacy, multiply whatever quote they give you (for a term life policy) by ten (low-end) or twenty (high-end) to get an estimate of how much whole life insurance would be. Yes, it is very expensive.

See our chart at “Whole Life Insurance Explained,” for a comparison of whole life insurance quotes. 

Are There Better Alternatives than Whole Life Insurance?

It depends on what your goals are. If you’re just looking for protection for your family in case you pass away unexpected, a term insurance policy is a better value. 

If you believe you need permanent life insurance, you should consider other permanent life insurance products that might meet your needs better, and much more affordable than whole life policy.

For example, if you need permanent lifelong protection for your family regardless whenever you pass away, guaranteed universal life insurance is a much better product at a much cheaper price. If having access to a cash value account and having cash value grow like an investment account at a moderate level are important to you, indexed universal life insurance is a much better choice, and also at a much cheaper price. Growth of cash value account in indexed universal life insurance policy is tied to popular indexes such as S&P 500. In addition, there are floor and cap rate, allowing it to benefit when market performs well and to be protected when there is recession. Learn more about the differences between whole life insurance and indexed universal life insurance.

>>MORE: IUL Calculator – How to Calculate Cash Value, Coverage, Premiums, etc. in an IUL Policy

Lastly, if you want to grow the cash value account even more aggressively, you can choose variable universal life insurance product, also at a more affordable price. It is very similar to indexed universal life insurance. However, instead of investing in indexes, policy holders of variable universal life insurance can invest cash value account to a wide range of investment assets, from low to high risks. While it can grow the cash value faster, it can also decrease faster if investments are chosen poorly.

>>MORE: The Differences Between Variable Life Insurance and Variable Universal Life Insurance

Is Whole Life Insurance Worth It?

The short answer is no. Whole life insurance is not worth it. It is too expensive and there are better alternatives you can choose from. People usually buy whole life insurance for two main purposes:

  • to leave a large amount of money, tax-free, to their heirs when they pass away. This is especially popular if you have a child with special needs or a part of estate planning.
  • to supplement their retirement income, if they need, by withdrawing or borrowing from the cash value account of the whole life policy when they get older.

For either purpose, you can choose a much better alternative. If you want to leave a large amount of money to your family when you pass away, guaranteed universal life insurance (GUL) is a much better option. It provides permanent coverage at a much cheaper price, usually less than half the premiums of whole life insurance.

If you want to have an option to withdraw from a life insurance policy to supplement your retirement income, either indexed universal life insurance (IUL) or variable universal life insurance (VUL) is a better option. The cash value account in either IUL or VUL will very likely grow much faster thanks to its pegging against the popular indexes like S&P 500 and being protected in a downturn market. The insurance cost in an IUL or VUL policy is also cheaper than that in a whole life policy, which leaves more money in the cash value account.

These are better alternatives that are less expensive than whole life insurance. Consider meeting with a financial advisor to discuss your needs and work out the best plan for you.

>>MORE: Why is Indexed Universal Life Insurance (IUL) a Good Idea for Retirement Savings?

Final Thoughts

Whole life insurance is very expensive, but in certain circumstances, it could be a smart financial move. Make sure you explore all of your options and weigh alternatives and calculate how much whole life insurance you need and will cost you before you make any decisions. 

Thang Truong

Thang Truong covers small business insurance and small business success at BravoPolicy. He is a licensed P&C insurance agent. Previously, he held product leadership positions at realtor.com, Capital One, NerdWallet, and Mulberry Technology. He holds a MBA degree from UC Berkeley - Haas School of Business.

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