Advanced Insurance Brokerage · Qualified Life

Term Premium Tax Calculator

See what a term life premium really costs when you pay it with after-tax dollars, compared with paying it through a traditional 401(k) with pre-tax or tax-deductible dollars.

Annual term premium

Retail premium quoted for the coverage

Income tax rate

Combined federal and state rate

Years of coverage

yrs

Use 1 for a single year, or the term length (e.g. 20)

Outside the plan · After-tax

Pay the premium yourself

Taxed first, and what's left pays the premium

$1,429

of pay you need to earn per year

Pay you earn	$1,429
Income tax on that pay	−$429
Left to pay the premium	$1,000
Reduces your take-home pay by	$1,000

Inside a traditional 401(k) · Pre-tax

Pay it through the plan

Paid before tax, so no tax comes out first

$1,000

of pay you need to earn per year

Premium paid from the plan	$1,000
Employer match	−$0
Tax on the REB, in pay	+$0
Income tax taken out first	$0
Pay you need to earn	$1,000
Reduces your take-home pay by	$700

Paying through a traditional 401(k) saves $429 of pay a year, about 30% of the cost.

Pay saved

$429

per year, in pre-tax pay

Take-home saved

$300

per year, in take-home pay

This doesn't include tax on the REB yet. Turn it on under "Add to the comparison" for the full picture of in-plan coverage.

Where your pay goes

After-tax (on your own)

Traditional 401(k)

Income tax Premium you fund

Add to the comparison (optional)

Employer match

Part of the premium paid by the company match (e.g. 100% of the first 3% of pay)

Unisex rate savings

Qualified plans use unisex rates. Savings vary, and rates can be higher for men.

Tax on the REB

Reportable Economic Benefit added to your W-2 (e.g. $340 for $1M at age 40, carrier rates)

Pre-tax or tax-deductible: same savings, counted once

Pre-tax: the premium is paid from your traditional 401(k), so it comes out before income tax.

Tax-deductible: you contribute the premium to your traditional 401(k), which lowers your taxable income, and the plan pays the policy.

Either way, the tax benefit is the same and applies once. A $1,000 premium costs $1,000 of pay instead of $1,429, which is $700 of take-home pay instead of $1,000.

How the math works

After-tax: pay needed = premium ÷ (1 − tax rate). At 30%, $1,000 ÷ 0.70 = $1,429.

Traditional 401(k): pay needed = premium (plus tax on the REB, if included). Take-home cost = premium × (1 − tax rate).

Roth 401(k) contributions go in after tax, so these savings apply to traditional contributions.

Hypothetical illustration for educational purposes only. It isn't tax, legal or investment advice, or an offer of any insurance product. Results depend on your actual premium, tax rates, plan provisions, employer match and the insurance company's REB rates. Buying life insurance in a qualified plan requires plan approval and must follow IRS rules, including incidental benefit limits on unseasoned contributions. The REB is reported as taxable income each year, which keeps the death benefit income-tax free. Consult your tax advisor.