Tax-Free Life Insurance Calculator

• Net premium credited: Premium_net = Premium × (1 − load), then subtract annual policy fee.
• Cash value projection (simplified): add contribution each year, grow by (1 + r), then apply admin fee.
• Taxable alternative (simplified tax drag): grows by r_after = r × (1 − tax_rate).
• Death benefit estimate: Level uses face amount; Increasing uses face + projected cash value.
• Optional loan: loan balance grows by Loan_balance = Loan_taken × (1 + loan_rate)^years.
• Inflation adjustment: real value is Future_value ÷ (1 + inflation)^years.

1. Enter your expected premium and how many years you will pay.
2. Choose a projection period that matches your planning horizon.
3. Set a realistic cash value growth rate and policy charge assumptions.
4. Enter a comparable taxable return and an effective tax rate on growth.
5. Optional: enable inflation adjustment to view results in today’s dollars.
6. Press calculate, then download CSV or PDF for your records.

Tax-free death benefit impact

Assume a $250,000 face amount and a 25-year planning horizon. If a beneficiary avoids a 22% income tax, an equivalent taxable payout could require about $320,513 of pre-tax income. That spread shows why many planners treat death benefit protection as a distinct, tax-advantaged asset class when comparing it to brokerage assets.

Cash value growth and policy charges

With a $2,500 annual premium for 20 years, a 4.50% crediting rate, a 4% premium load, a $120 annual fee, and a 0.40% admin fee, the modeled cash value can exceed $100,000 by year 25. If premiums stop at year 20, compounding typically drives most of the final balance. Small charge changes matter: adding 0.50% more annual fees can reduce long-run value by several thousand dollars.

Taxable alternative comparison

If the same premiums were invested in a taxable account earning 6.00% with a 22% effective tax drag on growth, the after-tax return becomes roughly 4.68%. Over 25 years, that difference can close or widen the gap versus policy cash value depending on charges and credited rate stability. A higher tax rate or frequent turnover can lower taxable results, while disciplined low-cost investing can improve them. Run multiple scenarios to stress-test your plan.

Inflation-adjusted planning view

At 2.50% inflation, $100,000 received in 25 years has today’s purchasing power of about $54,600. Switching on inflation adjustment helps you test whether projected cash value and death benefit targets still fund education, retirement bridging, or estate goals in real terms. Periodically reviewing assumptions keeps targets aligned with price changes over time. Use conservative inflation.

Policy loan sensitivity

Borrowing 30% of projected cash value and carrying the loan for 10 years at 5.50% interest can materially reduce net cash value if unpaid. A $30,000 loan can grow to about $51,300 over 10 years at that rate, reducing available cash value and potentially the benefit. Loans can be flexible, but persistent loan balances raise lapse risk and may trigger taxable outcomes if a policy collapses.

Is the death benefit always tax-free?

In many jurisdictions, life insurance death benefits are generally income-tax free to beneficiaries. Exceptions can apply, such as certain estate-tax situations, ownership transfers, or policy lapses. Verify rules for your country and your specific contract structure.

Does cash value growth avoid taxes forever?

Cash value growth is typically tax-deferred inside the policy. Access methods matter: withdrawals above basis and some policy loans can create taxable outcomes, especially if the policy lapses. Use projections as estimates, not guarantees.

What does the taxable alternative represent?

It models investing the same premiums in a taxable account with an effective tax drag on annual growth. Real outcomes depend on asset mix, turnover, dividends, and the investor’s tax bracket. Adjust return and tax rate to match your situation.

How should I choose a realistic growth rate?

Use an illustration rate consistent with the product and your risk tolerance. For indexed or variable products, consider caps, participation rates, and market volatility. For conservative planning, run lower rates and higher fees to test downside cases.

Why do policy charges matter so much?

Loads and fees reduce the amount credited to cash value and compound over time. Even small annual fee differences can create large long-term gaps. If you have an official illustration, plug in charges that match it as closely as possible.

What is the risk of taking a policy loan?

Loans accrue interest and can reduce net cash value and death benefit. If the loan grows too large and the policy lapses, outstanding gains may become taxable. Monitor loan balance annually and consider repayment plans.