Can I Have Multiple Life Insurance Policies?

What Is Face Amount In Life Insurance?

When you get life insurance, you are purchasing the promise that your insurer will make a payment to your dependents in the event of your death.

The purpose of life insurance is to provide financial security to those close to you and who are financially dependent on you. Even in passing, you’ll want to make sure that the people you care about are financially stable.

The terms “face value” and “face amount” are referenced frequently throughout the process of purchasing life insurance. How it works, and what part it plays in a life insurance policy are not entirely clear for many. 

Here in this article, that will be cleared up for you so you know what these terms mean when you encounter them.

What Is Face Amount In Life Insurance?

The face value of your life insurance policy is the sum of money that your insurer has agreed to pay after your death. The term refers to the amount of financial protection provided by a life insurance policy at the time of purchase. When you purchase a life insurance policy, you have the option of selecting the face amount. This amount will be indicated in your contract.

Face value is the amount that your beneficiaries will receive if you pass away so long as your policy is in place. 

As a result, if you purchase a life insurance policy with a face value of $500,000, your life insurance company will, in the majority of situations, pay out $500,000 to your beneficiaries when you pass away.

In many cases, the concepts of “face amount” and “death benefit” are used interchangeably. Many may mistake face amount for the death benefit amount.

Difference Between Face Amount And Death Benefit

While the two are fairly similar, they are not entirely the same in terms of technical specifications. The simplest explanation is that the face amount refers to the amount of life insurance that a policy owner possesses.

Many types of life insurance, including term and whole life, allow for adjusting death benefit amounts in both directions. For example, a consumer may decide to obtain a whole life insurance policy with a face amount of $200,000.

The face amount of the insurance policy will be specified in the policy contract. However, the death benefit may be reduced under rare circumstances.

Consider the following scenario. Let’s say the insured had a $20,000 outstanding policy loan. Here, the eventual death benefit paid out would be the sum of $20,000 less than $200,000. The resulting payout would be $180,000 dollars.

In this scenario, the face amount of the policy was $200,000 while the death benefit was $180,000.

In conclusion, a face value is the value of your life insurance policy. If you do not have a policy loan, your death benefit will have the same value as your face value.