How to use the buy term and invest the difference calculator
Get two quotes for the same death benefit: one for term life and one for whole life. If you have a whole life illustration, find the guaranteed cash value at the year you want to compare. Then pick a return to assume. Running the tool at two or three different returns gives a more honest picture than a single number.
How the calculation works
The tool treats the premium difference like a yearly deposit made at the start of each year, so every deposit earns a full year of return before the next one. This is the standard future-value formula for payments made at the beginning of each period. It does not include taxes, fees or bad years, so treat it as a best-case view of a steady plan.
A second worked example
What the result means
A positive comparison means that, on your assumptions, the invested difference would be larger than the guaranteed cash value at that year. A negative one means the cash value would be larger. Either way, the result is only as good as the return you assumed. The comparison also leaves out important differences, shown below.
| Feature | Term + invest the difference | Whole life |
|---|---|---|
| Coverage length | Ends with the term | Lifelong, if premiums are paid |
| Growth | Depends on markets; not guaranteed | Guaranteed cash value, plus possible dividends |
| Discipline needed | You must invest every year | Built into the premium |
| Access to money | Depends on the account | Policy loans or surrender, with costs |
| Taxes and fees | Depend on the account | Cash value grows tax-deferred in the policy |
For a full comparison of the two policy types, read term vs. whole life insurance. To decide how much coverage you need first, see how much life insurance do I need.
State rules that change the answer
Life insurance policies and illustrations are regulated by states. In New York, for example, the Department of Financial Services says new life policies have a free-look period of at least 10 and up to 30 days, so you can review a policy and cancel for a refund (NY DFS, accessed October 2026). Variable life products, which invest cash value in markets, are also regulated as securities and described by FINRA. Check with your state insurance department about the rules where you live.
Common mistakes
- Comparing different death benefits. Both quotes must be for the same amount.
- Using non-guaranteed values. Use the guaranteed cash value for a fair, cautious comparison.
- Assuming a high return. Try low returns too.
- Forgetting the term ends. If you need coverage later, it may cost much more.
- Not investing the difference. The idea only works if the money is actually invested every year.
When does this comparison matter?
This comparison is most useful when you are choosing between term and whole life for the same need, such as protecting a family while children are young or a mortgage is being paid off. If your need is temporary, many people compare the cost of term coverage first. If you need coverage for life, for example to pay final expenses or leave money to someone no matter when you die, the guarantees of permanent coverage may matter more than any projected investment gain.
It also matters how you would really behave. The invested value only appears if the difference is invested every single year and left alone. If the money would more likely be spent, the comparison overstates what you would have.
Questions to ask before you decide
- Are both quotes for the same death benefit?
- What is the guaranteed cash value at the year I care about, and what is not guaranteed?
- What happens if I stop paying the whole life premium in a hard year?
- Can the term policy be converted to permanent coverage later, and until what age?
- Where would I invest the difference, and what fees and taxes apply there?
Run the calculator at several returns and periods, and use the results to guide a conversation, not to make the choice for you.
Related tools
To pick a term length that fits your family, use the term length calculator. To estimate your coverage amount, try the life insurance needs calculator.
