How Is a Death Benefit Calculated on a Whole Life Policy?

Calculating the death benefit of a whole life policy is quite straightforward.
Calculating the death benefit of a whole life policy is quite straightforward. (Image: calculator image by dinostock from

Whole life insurance policies are permanent life insurance policies that build cash value. Whole life policies can be either participating or nonparticipating policies. A participating policy is eligible to receive dividends; a nonparticipating policy will not receive dividends. The dividend election made by the policy’s owner can impact the amount the beneficiaries of the policy receive after the death of the insured.


Every life insurance policy has a face amount of insurance. The face amount is the base amount the beneficiaries will receive upon the death of the insured. The policy’s face amount of death benefit will be adjusted for any paid-up additions, accumulated dividends or policy loans.

Paid-Up Additions

One use of dividends from a participating whole life policy is to purchase paid-up additions. Paid-up additions are additional insurance that is fully paid for by the dividend. Paid-up additions are added to the policy’s face amount payable to the beneficiaries.

Accumulated Dividends

Another use of dividends from a participating policy is to accumulate at interest. Dividends that accumulate at interest work like a savings account attached to the policy. The dividends earn interest; the interest and additional dividends accumulate within the policy. Accumulated dividends are added to the face amount and paid to the beneficiaries.

Policy Loans

Policy owners can borrow from the cash value of whole life insurance policies. Any outstanding loans at the time of the insured’s death are paid from the policy, reducing the amount paid to the beneficiaries.


Many insurance companies pay interest on the death benefit. Interest accrues from the date of death until the date payment is made to the beneficiaries. The amount received by the beneficiaries is increased by the amount of interest paid.

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