You might feel overwhelmed when you are buying life insurance. Even the best life insurance companies can feel overwhelmed by industry lingo, which can make purchasing a policy seem overwhelming.
You might wonder, when you are shopping for life insurance, what is the face value of that policy? The face value of your policy, also known as face value, is the most important part of your coverage. It is important that you know what face value is and how to distinguish between cash value vs face amount.
What is the face worth of a life insurance policy
Your face value, or the money that your beneficiaries will receive from you insurance company upon your death, is shorthand for your financial worth. It may also be called your coverage amount, death benefit, or face value. This is why you pay for life insurance.
What is your life insurance policy’s face amount? You don’t have to calculate if you haven’t used any cash value (more details in a moment).
Your face value should be listed in your policy benefits as a specified amount. You should read your policy carefully if you aren’t sure what the face amount is. If you are having trouble finding the face value, contact your insurance company. You should know how much money your family will receive if you die if you purchase life insurance.
We also mentioned how your face value can be affected by your policy’s cash values. It can be confusing to talk about life insurance face value and cash value, especially because these two components are often referred to as the same thing. These are separate items, but you need to know this.
Let’s compare the cash value vs. the face amount. Your death benefit is the face value or face amount. This is the money that you selected for your beneficiaries when you purchased your policy. It is usually a fixed amount.
A permanent life insurance policy may include a cash-value component. This is separate from your face price. Your insurance provider places some of the premium money in a separate account when you pay them. The type of policy you choose will determine if the money earns a steady interest rate or if it goes into an investment.
You can use your cash value in several ways.
- Premium payment: If the cash value is large enough, you can often use it to pay your premiums for life insurance.
- You might be eligible to borrow against your cash value as collateral for a loan. This loan will usually have a low interest rate, but you must repay it before your death or your insurance company will subtract the amount.
- Surrender value: You can get your cash value back if you surrender your life insurance policy. Your face value will be lost, but this will leave your family without this benefit in the event of your death.
What should my face price be?
You now know the difference in face and cash values of your life insurance policy. This will allow you to make an informed decision about which face value is right for you.
Although you might believe you want a policy with a large face value, you should be aware that the higher the policy’s face, the more it will cost you .
The key to choosing the right face value is to balance your future needs with your budget.
Insurers will usually cap your face value at a specific amount, based on factors like your age or your salary. For example, a 20- or 30-year old might be eligible for a policy that has a face value of roughly 50 percent of their current salary, while a 60 year-old may only be eligible for a face value of ten percent of their current salary. Insurers assume that younger people will live longer so they can charge more premiums to cover the face amount.
The right face value for your business will ultimately depend on these things:
- How many dependents do you have?
- Your salary
- If you have children, you can decide whether or not to pay for their college.
- You have outstanding debts like a mortgage
What is the cause of face value changing?
Your policy’s face amount does not change. This number is chosen when you purchase your policy. It stays the same until your death, when your beneficiaries will get that amount. This is one of the main differences between cash value and face value life insurance.
However, there are some things that can change your face. Let’s take a look at them.
Use a rider
An endorsement is an additional coverage that you can add to your life insurance policy. Some riders let you tap into your face while you are living.
You might add a terminal illness rider to your policy. If you are diagnosed with a terminal disease, you can still use your death benefit to pay for medical care while you are alive.
However, any money that you spend while you are alive will be subtracted from the face value amount. This will reduce the benefits your loved ones receive upon your death.
Cash value growth
This doesn’t technically affect your face value but it can impact the overall value of your policy. It’s something worth noting.
You might feel that your policy is becoming more valuable as your cash value increases. However, there are significant differences between the cash value and the face value.
It is important to understand that your insurance provider will absorb the remaining cash value of your death benefit unless you have a rider that allows it to be added to your death benefit. Cash value growth is rare so it’s best not to think of these riders.
A policy loan
As we have mentioned, you can borrow against a policy that has a cash value component to get a low-interest loan. Your insurance company may take your remaining loan amount and subtract it from your estate value at the time you die.
Falsely submitting your application or citing certain causes of death
Your insurer will pay the amount you request to your beneficiaries if they assume that your death is unforeseeable. You may violate your agreement with your insurance company if you lie about your application (e.g. you don’t disclose any pre-existing conditions) or if you commit suicide. They may cancel your policy at that point. This effectively reduces your face value to zero and leaves your loved ones without a life insurance policy.
Questions frequently asked
What does the face value have to do with my premiums?
Your premiums will increase if you have a higher face amount. Get quotes on premiums as you decide the face amount for your life insurance policy.
Which is the best life-insurance company?
It depends. It all depends on your age, your family’s requirements, your health, and other factors. The best company will help you find the right life insurance company.
Some life insurance companies have better products and services than others. We’ve created a list of top life insurance companies to help you compare the best providers.
How can I increase my face amount on my life insurance policy
Ask your insurance provider. They may adjust your policy in certain cases, such as if your income has increased significantly since you purchased your coverage. This may require a completely new underwriting process. You might have to take a second medical exam. Your premiums will also go up.
You can purchase additional life insurance if your insurer doesn’t increase your face worth and you need more coverage for your loved one.