What Is the Face Value of Life Insurance?

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What is life insurance face value? If you’ve ever purchased a policy or researched doing so, you may have heard this term. Simply put, the face value, or face amount, of your policy is the amount of insurance you buy. So, for example, if you purchase a $50,000 whole life insurance policy, that $50,000 is the policy’s face value. Often, this is the amount that your beneficiary will receive — called the death benefit — if you pass away while the policy is active and in good standing. However, face value and death benefit are not the exact same thing, and it’s possible for the death benefit amount to be different from the face value at various points throughout the duration of the policy. In this guide, Bankrate’s insurance experts explain why this may be the case, and outline everything you need to know to understand the face value of life insurance. 

What is the face value of a life insurance policy?

Often, the face value of life insurance is the amount of money that a policyholder’s beneficiaries will receive from the insurance company when the policyholder dies. If you’ve purchased life insurance, the face value should be listed on your policy (likely under policy benefits) as a specific sum. It may be referred to as the face amount on your policy versus face value. If you have any trouble locating this information, you can contact your insurance agent for help.

Face value vs. death benefit

As we noted above, the face value is another term for face amount, and it is related to a policy’s death benefit. In our example, if you purchase a whole life policy with a face value of $50,000, you might expect that your beneficiaries will receive that amount when you die. And many times, that is the case. But there are a few other factors that may impact the exact amount of the death benefit.

Here are a few examples of elements that might influence the amount of death benefit your beneficiaries receive:

• If you take a loan against your policy’s value and don’t pay it back, the death benefit could be reduced by the amount of the loan plus accrued interest.
• If you have a whole life policy that earns dividends and you use them to purchase paid-up additions, this can increase the total death benefit.
• If you withdraw from the cash value on a universal life insurance policy, this amount permanently reduces the death benefit.
• If you have a rider on the policy that provides living benefits and choose to access the funds it can provide, it would likely decrease the death benefit.
• Unpaid premiums could be subtracted from your death benefit.
• If you have a decreasing term life insurance policy, your death benefit will decrease slowly over the life of the policy.
• Some universal life policies offer an increasing death benefit, which grows alongside the cash value.
• An accidental death benefit rider can increase the death benefit if the insured dies as the result of an accident.

Face value vs. cash value

What about face value vs. cash value? Are these two similarly named elements the same thing? No, they’re not. Because the term “face value” is often used instead of face amount, it can be even more confusing. Cash value is a feature of permanent types of insurance, one of the two main types of policy, as listed below: 

Both types of policy have a face value, the amount of coverage the policyholder purchases. But only permanent types of insurance have a cash value, an amount you can access while you are alive. That cash value slowly accumulates, earning interest as you pay your premiums. You can borrow against this amount if necessary, but failure to pay back the loan will impact your death benefit.

Your beneficiary generally does not receive both the cash value and the death benefit when you pass away, only the death benefit. However, in some policies, such as variable life, the cash value’s investment performance can increase or decrease the death benefit.

If you choose to surrender your life insurance, you may receive the cash value of your policy in a lump sum. Note this action terminates the policy, so your beneficiaries will no longer receive a death benefit.

What should the face value of your life insurance policy be?

You may wish to have a policy with a high face value in order to more adequately provide financial support for your beneficiaries. But keep in mind that the higher your policy’s face amount, the more you’ll likely pay for it. Picking the right face value comes down to balancing your loved one’s future needs and your current budget.

Ultimately, the right face value for you will depend on:

• Your salary
• Your outstanding debts, like a mortgage
• The anticipated financial needs of your partner/spouse or children with special needs
• The total number of dependents you have
• The likelihood your children will need money for their education

Determining the appropriate face value for your circumstances may require careful consideration. Bankrate’s insurance editorial team has collected tools to help you make the right decision, including a life insurance starter guide and calculator.

How does face value influence my premiums?

The face value of a policy is one of the primary factors insurers use to determine the cost of the policy. Other factors that they look at include your health, lifestyle, profession and age. All other factors being equal, a higher face value will lead to a higher rate. Since every insurer uses their own proprietary underwriting guidelines to determine premiums, however, you may find a policy that fits your wallet by asking for quotes for your desired face value from a range of potential insurers. 

Frequently asked questions

• What is the best life insurance company?
  

  The best life insurance company will vary from person to person. Your age, your family’s needs, your health and several other factors impact your life insurance needs — and the best company to meet them. Not to mention, insurers evaluate risk factors differently, so the cost of your coverage through Company A may vary significantly from Company B. Experts recommend shopping around with several insurers and speaking with an insurance professional to determine what’s best for your situation.

• Can lying on my application affect my policy’s face amount?
  

  It’s never a good idea to lie on a life insurance application and, depending on the situation, you may even be found guilty of insurance fraud. If your insurer finds discrepancies in your application after your policy has been approved, they may reduce the face amount of your policy to equal the amount your premium entitles you to based on the facts, rather than what you’ve included in your application. The insurance company typically has two years, called the policy’s contestability period, to review your application to ensure there are no material misrepresentations. If it’s determined you lied or withheld key information, the insurer could deny a claim altogether, or reduce your beneficiary’s benefits to reflect the more accurate risk.

• How do I increase the face amount of my life insurance policy?
  

  In most cases, you can only decrease the face amount of a policy, not increase it. If your insurer does allow for increases in face amount, you will likely need to go through underwriting again and partake in a medical exam. If you want more coverage, you can opt to buy an additional life insurance policy. Individuals can own multiple life insurance policies at one time.