Syndicated Financial Columnist, Host of the weekly talk show Steve Savant's Money, the Name of the Game, Scottsdale Arizona
The face value of a life insurance policy is the current death benefit amount of an in force policy. Most life insurance face amounts remain the same from their date of issue. But some permanent cash value policies have options that can increase the face amount beyond it's original benefit. Some accumulating policies may increase in cash values enough to force an increase in the face amount.
The face value of a life insurance policy is the amount the policy would pay out if the insured person died at that point in time. The face value can be higher or lower than the original face amount, depending on if the policy grew or if loans were taken out against it.
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At the outset, that is when you first buy your policy, the face value is the stated amount of life insurance that your named beneficiary would receive upon your death. In a more simple term policy, this number doesn't change over time. If you buy a $100,000 policy today, the death benefit or face value will usually be the same 10, 20 or 30 years down the line. The premium for this coverage may increase, but the coverage remains the same. With a permanent life insurance policy, the face amount or death benefit may change depending upon the type of policy it is. For example, since there is an added element of inside cash accumulation in some forms of permanent plans, the death benefit may actually be more than the original face amount because the accumulation may be added to the face amount. If on the other hand, one borrows from that cash value and that policy loan is not paid back at the time of death, the loan and interest amount would be subtracted from the face amount thus possibly reducing the death benefit below the original face amount.
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So if someone states that the face value of a life insurance contract is $1,000,000 that means the death benefit of the policy is $1,000,000.