Life Insurance Beneficiary Payout Estimator
Estimate the net payout a beneficiary receives from a life insurance policy, accounting for outstanding loans, unpaid premiums, interest accrued on loans, and applicable state estate taxes.
Formulas Used
1. Accrued Loan Interest (Compound):
Accrued Interest = Loan Balance × ((1 + r)t − 1)
where r = annual loan interest rate (decimal), t = years outstanding
2. Total Loan Deduction:
Total Loan Deduction = Loan Principal + Accrued Loan Interest
3. Gross Adjusted Benefit:
Gross Adjusted = Face Value − Total Loan Deduction − Unpaid Premiums − Rider/Accelerated Benefits Paid
4. Tax Amount:
Tax Amount = Gross Adjusted × Estate Tax Rate
5. Net Total Payout:
Net Payout = Gross Adjusted − Tax Amount
6. Per-Beneficiary Payout (Equal Split):
Per Beneficiary = Net Total Payout ÷ Number of Beneficiaries
Assumptions & References
- Death benefits paid directly to a named beneficiary are generally income-tax-free under IRC §101(a).
- Policy loans reduce the death benefit dollar-for-dollar; unpaid loan interest compounds annually at the policy's stated loan interest rate.
- Unpaid premiums and any accelerated/rider benefits already disbursed are deducted from the face value before payout.
- Estate or inheritance tax applies only when the policy proceeds are included in the taxable estate (e.g., insured owns the policy). Rates vary by state; the federal estate tax exemption for 2024 is $13.61 million per individual (IRS Estate Tax).
- This calculator assumes an equal split among all named beneficiaries. Unequal splits require per-beneficiary percentage inputs not modeled here.
- Contestability clauses, suicide exclusions, or policy lapses may reduce or eliminate the benefit entirely and are not modeled.
- This tool provides estimates only and does not constitute legal, tax, or financial advice. Consult a licensed insurance professional or estate attorney for personalized guidance.