The face amount, or face value, of a life insurance policy, is the amount of money an insurer will pay out to beneficiaries if the policyholder passes away. For example, if you buy a $100,000 life insurance policy, the face amount of that policy is $100,000. Generally, life insurance with a higher face value will cost more in premiums. Here’s what you need to know to calculate the face value of life insurance and understand how it differs from cash value.

How to calculate the face value of life insurance

Calculating the face value of a term life insurance policy can be straightforward. The policy’s death benefit payment is typically the face amount. Keep in mind that any riders you’ve added to your policy may impact the total value. It may be a little trickier to calculate the face value of a permanent life insurance policy.

A permanent life insurance policy differs from term as it lasts a lifetime and can accrue cash value. You can borrow against that cash value or withdraw from it. Removing a policy’s cash value can impact the face value. Any funds removed from the cash value account and not replenished could mean loved ones won’t receive as big a death benefit.

To calculate the face amount of a life insurance policy:

• Review policy documents to determine the total death benefit.
• Subtract any cash value account loans or withdrawals.
• Take riders into consideration that could either increase or decrease the face amount.

If your head is spinning as you try to calculate your life insurance policy’s face amount, our agents are available to help.

Does life insurance face value ever change?

In most cases, the face value of life insurance does not change. As long as you retain the same policy and continue to make payments, the face amount will remain consistent. However, there are a few unique scenarios where face value can change, including if:

• You used a rider: Some policy riders, like terminal illness, enable you to use a policy’s value while you’re alive. With a terminal illness rider , you can access your death benefit early for medical or living expenses if you are diagnosed with a terminal illness. Because you’re getting some of the benefit now it decreases the face value of your policy, meaning your beneficiaries will receive less when you pass away.
• You took out a loan: If you leveraged a cash value life insurance policy by taking out a loan, your insurer would subtract any unpaid amounts from the death benefit when you pass.
• You switched to a larger or smaller coverage amount: Life happens, and you may go through periods of not being able to afford as much coverage or wanting to bump up your coverage. For example, if you had a surprise pregnancy, your existing coverage might not be enough to provide for the new child’s education expenses. In that case, you could work with your insurer to increase your coverage amount, which increases your policy’s face value.
• You lied on your life insurance application: If you pass away during a policy’s contestability period, which typically lasts a few years after buying a policy, an insurer can review your application to ensure you were truthful. If you misrepresented something, like not disclosing a cancer diagnosis, your beneficiaries could receive a partial death benefit, or the claim could be denied entirely. In this instance, the face amount of the policy would become lower.

Is life insurance face value the same as cash value?

Life insurance face value is not the same as cash value. Face value applies to all life insurance policies, regardless if it’s a term or permanent policy whereas cash value only applies to permanent life insurance policies.

Face value is for your beneficiaries: it’s the amount they’ll receive if you pass away while the policy is active. Yet, cash value benefits you as you can tap into the equity of a policy while you’re alive.

What should your life insurance face value be?

The face value of a life insurance policy should be enough to meet your family’s financial needs and goals. For example, if you want to leave a hefty legacy payment to your favorite charity, you may need a life insurance policy with a larger face amount. If you only need to leave behind enough money to cover burial expenses, a smaller face amount via a final expense policy might be sufficient.

Consider these steps if you’re unsure how much life insurance you need.

1. Determine your family’s needs

It’s important to assess your family’s needs as you think about your life insurance’s face value. Calculate the amount of money loved ones would need to cover debts like a mortgage or medical bills and education expenses for dependents. You’ll also want to consider how many dependents the policy needs to support and the number of monthly expenditures covered by your income. If you’re struggling to come up with an appropriate policy size, our life insurance calculator can help.

2. Figure out how much coverage you can get

Once you have a ballpark idea of how much money your family needs, you’ll want to determine how much coverage you can get. Face value could be limited based on your ability to show a financial justification. An insurer may ask about your income, age, and health to determine if you have a case for a larger policy, like a million-dollar life insurance policy .

3. Decide how much you can afford

Larger face amounts generally mean higher premium payments, so it’s important to know what you can afford as you get quotes. The good news is that many people overestimate the cost of life insurance coverage. According to LIMRA’s 2021 Life Insurance Barometer study , more than half of the population thinks a $250,000 term life policy is over three times more expensive than it actually is. For this reason, it’s best to get a quote to determine how much a policy with the face amount you want costs. Then, compare that with your budget and how much you can reasonably afford to pay.

Find your life insurance policy with Fidelity Life

Reviewing different policy types can help you understand how premium payments change with different face values. It’s wise to compare the cost and coverage of term and permanent life insurance policies before you commit. Get started today by getting a quote or contacting an agent at 866-366-0251.