Term vs Whole Life Calculator
"Buy Term and Invest the Difference," Quantified
The term-versus-whole-life debate usually gets argued in generalities. This calculator puts numbers behind the classic "buy term and invest the difference" comparison: what term life costs over a set number of years, what whole life costs over the same period, and what the premium difference would grow to if invested at an assumed rate instead of paid into a whole life policy.
The Formula
Whole Life Total Cost = Whole Life Premium × Years
Invest-the-Difference Value = (Whole Premium − Term Premium) × (((1 + r)n − 1) ÷ r)
The last line is the future value of an ordinary annuity: investing the annual premium difference every year at assumed rate r for n years. It's the standard formula for what a series of equal annual contributions grows to under compound growth.
A Worked Example
| Years | Term Total Cost | Whole Life Total Cost | Invested Difference Grows To |
|---|---|---|---|
| 10 | $4,000 | $25,000 | $27,679.67 |
| 20 | $8,000 | $50,000 | $77,249.74 |
| 30 | $12,000 | $75,000 | $166,022.19 |
At 30 years, investing the $2,100/year premium difference at an assumed 6% return outgrows the entire whole life outlay by roughly $91,000 in this example — but whole life cash value and guarantees aren't modeled here, and actual investment returns aren't guaranteed either.
Where This Matters
- Choosing a policy type when first buying life insurance — running your own actual quoted premiums through this framework makes the tradeoff concrete instead of theoretical.
- Evaluating an existing whole life policy — compares what continuing to pay whole life premiums costs against switching to term and investing the savings.
- Testing sensitivity to investment assumptions — lowering the assumed growth rate shows how much the "invest the difference" case depends on actually achieving that return.
How to Use This Calculator
- Enter the term life annual premium.
- Enter the whole life annual premium (must be higher than the term premium for this comparison).
- Enter the number of years to compare.
- Enter an assumed investment growth rate, or leave blank to use the 6% default.
- Select Calculate to see total costs for each option and what the invested premium difference would grow to.
Related Calculations
Start by sizing your actual coverage need with the Life Insurance Calculator, or get an illustrative premium estimate with the Premium Calculator.