Life insurance rate of return calculator to find death-benefit or cash-value IRR, or the terminal value needed for a target annual return and premium timing.
Life Insurance Rate of Return Formula
The calculator finds the annual rate that makes the accumulated value of level annual premiums equal to a terminal death benefit or cash value:
Terminal Value = sum of Premium_t * (1 + IRR)^(Years - t)
For premiums paid at the beginning of each year, each premium receives one additional year in the cash-flow comparison. Required-value mode evaluates the same premium stream at a target return:
Required Terminal Value = Future Value of Premium Cash Flows at Target Return
Variables:
- Terminal Value is the death benefit or cash value measured at the end of the selected year
- Premium_t is the premium paid in year t
- IRR is the annualized cash-flow rate of return
- Years is the number of level annual premiums
- Premium Timing determines whether each payment occurs at the beginning or end of the year
The calculator uses a numerical solution so it can handle positive or negative returns and either premium timing.
Life Insurance Return Reference
The table shows the terminal value required for $6,000 beginning-of-year premiums to earn selected annualized returns.
| Premium years | 0% return | 3% return | 5% return | 7% return |
|---|---|---|---|---|
| 10 | $60,000 | $70,847 | $79,241 | $88,702 |
| 20 | $120,000 | $166,059 | $208,316 | $263,191 |
| 30 | $180,000 | $294,016 | $418,565 | $606,438 |
| 40 | $240,000 | $465,980 | $761,039 | $1,281,657 |
Example Problems
Example 1: Calculate a death-benefit return.
A policyholder pays $6,000 at the beginning of each year for 30 years and the policy pays a $500,000 death benefit at the end of year 30.
The cash-flow internal rate of return is approximately 6.0% per year. This return does not separately value the protection provided during all 30 years.
Example 2: Find the cash value required for a target return.
The same $6,000 beginning-of-year premium stream lasts 20 years and the target return is 5%.
The terminal cash value would need to be about $208,316 to match a 5% annualized cash-flow return.
Frequently Asked Questions
Is death-benefit IRR the same as an investment return?
It is a useful cash-flow comparison, but life insurance also transfers mortality risk throughout the coverage period. The timing and certainty of the death benefit differ from a conventional investment account.
Should premiums be entered at the beginning or end of the year?
Use beginning of year when premiums are paid at policy anniversary or in advance for the coverage year. Use end of year only when that timing better matches the cash-flow comparison.
Can the calculated return be negative?
Yes. If the terminal cash value is below total premiums, the cash-flow IRR can be negative. Death-benefit IRR can also be low when premiums are paid for a long time relative to the benefit.
