How to Calculate the Rate of Return for Whole Life Insurance

How to Calculate the Rate of Return for Whole Life Insurance
••• shapecharge/E+/GettyImages

Whole life insurance is a type of life insurance that combines insurance with an investment component. Whole life insurance policies offer a cash value account. This cash value account earns a set rate of return determined by the insurance company. Some whole life policies sold by insurers may offer you dividends. These dividends are payable to the policy and increase the death benefit amount. Alternatively, the dividends may be paid in cash or left to accumulate interest with the insurer. These dividends constitute a part of the policy's rate of return.


  • You can calculate the rate of return, for whole life insurance by subtracting the total premiums paid from the total cash value of the policy, dividing this sum by the total premiums paid, and multiplying the resulting figure by 100. This will give your rate of return, expressed as a percentage value.

Finding Your Insurance Policy Illustration

Gather your life insurance policy information. You must have your life insurance policy illustration. The policy illustration details the amount of premium you've paid into the policy. It also tells you the total cash value. Whole life insurance is a "bundled" product. This means that there is no way to calculate the cost of insurance. This also means that calculating the rate of return on the policy is done as a total return rather than a year-by-year return. Additionally, the rate of return is in reference to the total premiums paid.

Write down the total premiums paid into the policy to date. This number is found on your policy illustration. As long as you've made all required premium payments, the illustration will show you how much in premium you've paid. If you have used dividends to pay for some of the premium, you must calculate the total premiums paid by referencing your most recent life insurance policy statement or by calling your insurer and requesting this information.

Finding the Total Cash Value

Write down the total cash value of the policy as of this year. The amount of cash value you will accumulate as of this year is located on your policy illustration as well as your most recent policy statement. Now all you need to do is run a simple math calculation. Start by subtracting the total premiums paid from the total cash value. Then, divide the resulting number by the total premiums paid. Finally, multiply the resulting number by 100. This will give you the rate of return on your policy.

Understand the Numbers

Understand that the rate of return you have calculated is a total return. It does not reflect annual returns. To find your average annual return, you may divide the total return by the number of years the policy has been in force to get an estimate of what the policy must have averaged per year to achieve the rate of return that it has.