Whole of life cover vs investing the premiums
Would your family be better off if you invested the premiums instead? This calculator compares what your heirs receive from a whole of life policy written in trust with investing the same money yourself, allowing for inheritance tax on money left in your estate.
Default illustration
- Cover type: Joint life, second death
- Ages: 62 and 60
- Sum assured: £500,000
- Premium: £1,000 a month. Enter the premium from an actual guaranteed quote. We do not price cover on this page. Get a quote
- Assumed net investment return: 5% after charges and tax
- Where the invested money sits: In your estate
- IHT rate on invested money: 40%
Investing first exceeds the policy at the year 31 checkpoint (ages 93 and 91).
Break-even: year 31. The headline shows both lives' ages in the order entered at the first annual checkpoint where investing exceeds the policy payout.
| Year | Ages | Premiums paid | Investment pot | Heirs' share from investing | Policy payout | Policy equivalent return |
|---|---|---|---|---|---|---|
| 5 | 67 / 65 | £60,000 | £67,814 | £40,688 | £500,000 | 97.74% |
| 10 | 72 / 70 | £120,000 | £154,363 | £92,618 | £500,000 | 27.27% |
| 15 | 77 / 75 | £180,000 | £264,825 | £158,895 | £500,000 | 12.69% |
| 20 | 82 / 80 | £240,000 | £405,804 | £243,483 | £500,000 | 6.87% |
| 25 | 87 / 85 | £300,000 | £585,735 | £351,441 | £500,000 | 3.87% |
| 30 | 92 / 90 | £360,000 | £815,376 | £489,226 | £500,000 | 2.11% |
| 31 | 93 / 91 | £372,000 | £868,417 | £521,050 | £500,000 | 1.84% |
| 35 | 97 / 95 | £420,000 | £1,108,463 | £665,078 | £500,000 | 0.98% |
| 38 | 100 / 98 | £456,000 | £1,321,874 | £793,124 | £500,000 | 0.48% |
Many people live beyond average life expectancy, and investment returns are not guaranteed.
For guaranteed premium whole of life policies only, not reviewable policies. This is a simplified illustration using a constant return, not a prediction, quote or advice. Investment values can fall as well as rise.
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How this calculator works
Enter a positive sum assured and monthly premium from a guaranteed quote to see a comparison. The illustration runs from year 1 until the older life reaches age 100, with a minimum horizon of zero. No comparison period is available if a life is already aged 100 or more. For joint life, second death cover, the policy pays on the second death; the headline names the first annual checkpoint when investing exceeds the policy payout and both lives' ages, in the order entered. For single life, it shows that person's age.
Premiums paid to date equal the monthly premium multiplied by 12 and the number of years. The same monthly amount is invested at the end of each month. The net annual investment return, after charges and tax, is converted to a monthly rate using (1 + annual return) raised to the power of 1/12, minus 1.
If the investment remains in your estate, the pot is reduced by your chosen inheritance tax rate of 40% or 36%. This illustration does not apply nil rate bands to the pot. Assumes every pound of the investment pot is taxed at this rate. 36% only applies where charity gifts are at least 10% of the estate after reliefs and the nil rate band (the residence nil rate band is not deducted for this test). Charity gifts are not taken out of the pot here. If the investment is outside your estate, the full pot is shown. Outside your estate assumes the money is effectively gifted, for example into a trust. Trust charges and costs are not modelled, and not every gift into a trust is free of inheritance tax straight away.
The policy is assumed to be written in trust, outside your estate, so the heirs receive the sum assured. The guaranteed sum is payable if premiums are maintained and the policy terms are met. A policy can lapse if premiums stop.
Break-even is the first whole year in which the heirs' share from investing exceeds the sum assured. It is a comparison at annual checkpoints, not an estimate of when someone will die. If there is no crossing by the end of the illustration, no break-even is shown.
The policy equivalent return is the annualised rate at which the same end-of-month premiums would grow to the sum assured if death occurred in that year, before any inheritance tax on an alternative investment. It is not a policy investment return or a surrender value. A negative figure means the premiums paid exceed the payout. It is unavailable when no finite equivalent rate exists, including zero premiums or a payout no greater than the final monthly premium.
Investing keeps money accessible but carries investment risk. A policy gives a guaranteed sum if premiums are maintained, rather than an accessible investment pot. The illustration assumes constant premiums, a fixed sum assured and a constant net investment return, and ignores inflation. It is not a mortality forecast or recommendation.