Project what the premium difference between a permanent and a term policy could grow to if you invested it instead.
"Buy term and invest the difference" is the most common argument against permanent life insurance. This projection lets you test it with your own quotes.
How to fill it in. Get a permanent quote and a term quote for the same face amount. Enter the monthly difference, a return you consider realistic for how you would actually invest it, the number of years, and the tax rate on gains. Inside a TFSA, gains are not taxed, so enter 0.
Formula. Monthly deposits compound at the assumed return: future value = deposit x ((1 + r/12)^(12n) - 1) / (r/12).
Worked example (illustrative). A permanent policy at $330 a month versus a 20-year term at $80 a month leaves $250 a month. Invested for 20 years at an assumed 5% a year, $60,000 of deposits grows to roughly $102,800 before tax.
How to read it. Compare the projected value with the permanent policy's projected cash value at the same date, and remember that the term policy's death benefit ends when the term ends while the permanent one continues. The argument only works if you really invest the difference every month. It also ignores needs that only permanent coverage meets, such as a lifelong estate tax liability or a dependant who will always need support. See buy term and invest the difference for the full comparison. Returns are not guaranteed.
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