Enter Policy Details
Example Data
| Scenario | Annual Premium | Cash Value | Years Remaining | Replacement Increase |
|---|---|---|---|---|
| Typical cash-value policy | $ 1,200 | $ 8,500 | 15 | 18% |
| Low cash value, higher fees | $ 900 | $ 2,000 | 10 | 25% |
| Term-only (no cash value) | $ 650 | $ 0 | 20 | 12% |
Use the example rows to sanity-check your input ranges.
Formula Used
- Net surrender value = Cash Value − (Cash Value × Surrender Charge %)
- Taxable gain = max(0, Net Surrender Value − Cost Basis)
- Tax on gain = Taxable Gain × Tax Rate %
- Net cash received = Net Surrender Value − Tax on Gain
- Present value of premiums (annuity) = Payment × (1 − (1+r)−n) ÷ r
- Projected cash value = Cash Value × (1+g)n
- PV cash-value shortfall = (Projected CV − FV(Net Cash)) ÷ (1+r)n
- Total lapse cost = PV Extra Premiums + Fee + Gap Cost + PV Cash-Value Shortfall
How to Use This Calculator
- Enter your annual premium, years paid, and years remaining.
- If your policy builds value, enter the current cash value.
- Add surrender charge and an estimated tax rate on gains.
- Set a discount rate to compare today versus future values.
- Estimate replacement premium increase and any new policy fee.
- Optionally include a coverage gap and monthly risk cost.
- Click Calculate to see totals and breakdown.
- Download a CSV or PDF for sharing and recordkeeping.
If you are unsure about taxes or charges, use conservative estimates.
Premium and Time Horizon
Premium level and remaining years drive the present-value comparison. A 1,200 annual premium over 15 years at a 6% discount rate produces a PV near 11,650, showing how long horizons magnify small rate changes. Shorter remaining terms reduce the penalty of replacing coverage, while longer terms make even a 10% increase meaningful.
Surrender Value and Taxes
Net cash received is cash value minus surrender charges and taxes on gains. For an 8,500 cash value with a 6% charge, the charge is 510 and net surrender value is 7,990. If cost basis is 6,000, taxable gain is 1,990; at 15% tax the estimate is 299, leaving about 7,691 available today.
Replacement Premium Pressure
Replacement premiums are modeled as a percentage increase over current premiums. Using an 18% increase, the replacement premium becomes 1,416 per year. The calculator values both streams with the same discount rate and reports the PV difference as extra premium cost. This isolates the economic friction created by underwriting age, health changes, and market pricing.
Coverage Gap Exposure
Coverage gaps are common when underwriting or payment timing delays start dates. The gap module translates uncertainty into an expected monthly risk cost. Two months at 40 per month adds 80 to the lapse estimate. If you face higher exposure, increase the monthly amount to reflect dependents, debts, or business obligations during the gap.
Interpreting the Total Lapse Cost
Total lapse cost combines PV extra premiums, a new-policy fee, gap cost, and PV cash-value shortfall. The shortfall compares projected cash value growth against investing the net surrender proceeds at the discount rate. Use the breakdown chart to see which driver dominates, then test sensitivity by adjusting the discount rate and growth rate by 1–2 points. In many cases, surrender charges decline annually; rerun with lower charges to find breakeven. Compare PV keep versus PV replacement to decide if keeping coverage fits best. Record three scenarios: optimistic, base, and conservative, then keep the median estimate overall carefully.
FAQs
1) What does the lapse cost estimate represent?
It is the combined economic impact of canceling: extra replacement premiums (present value), fees, expected gap cost, and the lost cash-value growth compared with investing net surrender proceeds at your discount rate.
2) How should I set the cost basis field?
Use total premiums paid into the policy when known. If you are unsure, leave it blank and the calculator estimates basis as annual premium multiplied by years paid, which is a common planning shortcut.
3) Why does the discount rate change the result so much?
The discount rate affects present values and the investment comparison. Higher rates reduce the PV of future premiums and also reduce the PV of any future cash-value shortfall, which can lower the total lapse cost estimate.
4) What if my policy has no cash value?
Set cash value to 0. The calculator will remove surrender proceeds and cash-value shortfall effects, so the lapse estimate will focus on replacement premium differences, new policy fees, and any coverage gap cost.
5) How do I estimate replacement premium increase?
Start with a conservative range such as 10% to 30%. Age, underwriting class, and market pricing can push the increase higher. Run multiple scenarios to see how sensitive the PV extra premiums component is.
6) How should I interpret the Plotly chart?
Each bar is a component of total lapse cost. If one bar dominates, that is your main driver. Adjust related inputs, such as surrender charge, replacement increase, or growth rate, to test strategies that reduce that component.