What is the face value of a life insurance policy?

The life insurance coverage amount you purchase is the face value of the policy.

Nupur Gambhir

Nupur Gambhir

Published November 18, 2020

KEY TAKEAWAYS

  • The face value of something is its dollar worth

  • Your life insurance policy’s face value is the death benefit amount you purchase

  • You should buy a policy with a face value that is 10-15 times your income and has some cushion for unexpected costs

For your life insurance policy to adequately protect your loved ones if you die unexpectedly, you need to get one thing right: the face value. The face value of your policy is the money your beneficiaries receive, making it one of the most important considerations when you’re shopping around for coverage. It’s so important, Phil Collins even released an entire album about it.

What is face value?

The face value of something is the dollar amount that it equates to. For example, when you’re selling your furniture at face value, you’re selling it for the dollar amount it is worth. No more and no less.

What is the face value in life insurance?

The face value of life insurance is how much your policy is worth, and more importantly, how much life insurance money is paid out when the policyholder dies. Within your policy, it is officially denoted as the death benefit. Face value can also be used synonymously with “face amount” or “coverage amount”.

The exact face value of your life insurance policy will depend on how much coverage you bought. If you bought $1 million in life insurance coverage, your policy’s face value is $1 million, which is also how much your beneficiaries will receive if you die while your policy is active.

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

Your policy’s face value should be high enough to ensure your family’s financial protection, typically 10-15 times your income, according to Policygenius experts. Additionally, you may want to add an extra cushion to cover unexpected costs, like surprise medical bills.

To determine the right face value of your policy, account for covering the following expenses:

  • Outstanding debts
  • The cost of raising your dependents
  • College tuition
  • Everyday bills and expenses
  • Final medical bills
  • The cost of your funeral

Check out our coverage calculator below to get an idea of what face amount is best suited for your particular needs:

Face value eligibility

The face value of your policy can’t just be any old number. Insurers evaluate your financial justification for life insurance before they grant you coverage. This includes verifying that you’re eligible for the face amount of coverage you’re asking for based on your age, income, and assets. Your income and age determine how much coverage you can get, though other factors (like the number of dependents you have) can justify some requests for a face value that isn’t proportionate to your net worth.

For example, if you’re under the age of 30, some insurers may let you get a policy with a face value that is as much as 40 times your income. But in your 60s, this number may drop down to 10 times your income. The exact amount you’re eligible for depends on your insurer.

Face value vs cash value

The face value of a policy differs from the cash value, which is an investment-like component that supplements some whole life insurance policies. The cash value of a life insurance policy is meant to be accessed while you’re still alive — it can be used to pay your policy premiums, withdrawn for cash, or borrowed against.

While the cash value can accumulate over your policy’s term, it doesn’t increase a whole life insurance policy’s face value because it is never added to the policy’s death benefit. If you die and haven’t used the cash value, the funds go back to your insurance company, not your beneficiaries. Your beneficiaries only receive the death benefit after you die.

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Can the face value of your policy change?

There are a few circumstances where the face value of your policy will change. However, it is possible to decrease how much money your beneficiaries get when you die. The following instances can alter the face amount of your coverage:

You used a rider to get some of the death benefit early

Some riders pay out part of the death benefit while you’re still alive. The accelerated death benefit rider, for example, pays out the death benefit if you’re diagnosed with a terminal illness, while an accidental death and dismemberment rider (AD&D) will pay out if you lose a limb or digit in an accident.

If you have one of these riders as a part of your coverage and the need arises to use it, the money you get will be taken from the death benefit, changing the ultimate face value of your policy. Whatever is left will be the final face amount that your beneficiaries receive.

You took out a loan against the policy’s cash value

If you have a whole life insurance policy with a cash value, how you utilize that cash value can impact the face value of your coverage. Most notably, if you take out a loan against your policy’s cash value and don’t repay the funds before you die.

Any money you owe will be taken from the death benefit to repay your insurer, and whatever is left will be paid out to your beneficiaries. Because taking out a loan against your policy’s cash value can risk your family’s long-term financial security, using your life insurance policy for a loan should be a last resort.

You lied on your life insurance application

Any intentional dishonesty on your life insurance application has ramifications for your beneficiaries’ financial health. If your insurer finds out about any misinformation you provided, they can reduce the face amount of your policy or not pay out any money whatsoever. To protect your loved ones from any chance of your insurer decreasing the life insurance face amount, be as honest as possible on your life insurance application.

The face value of your policy is important because it’s likely why you’re buying life insurance coverage in the first place — to provide financial support to your loved ones in case you’re no longer around to do so. Getting a policy with the right face amount and ensuring your beneficiaries receive the full value of your policy protects their long-term financial health.

FAQ

What does face value mean?

Face value (also known as face amount) is the dollar amount that something is worth. If you buy a house for $500,000 but remodel and renovate it, its face value may be at a new, higher price.

What is the face value of life insurance?

The face value of your life insurance policy is the amount that is paid out to your beneficiaries when you die. If you designated a life insurance payout of $750,000, then the face value of your policy is $750,000.

What is the difference between face amount and death benefit?

The death benefit of your life insurance policy is just a technical term for face amount. Your policy’s death benefit is the same as your policy’s face amount, and vice versa.

Insurance Expert

Nupur Gambhir

Insurance Expert

Nupur Gambhir is an insurance editor at Policygenius in New York City. Previously, she has worked in marketing and business development for travel and tech. She has a B.A. in Economics from Ohio State University.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.