Have you heard of life insurance face values but are unsure what they are? You may be wondering how it differs from cash value.

We all know that insurance companies frequently use complex jargon when explaining things about life insurance.

This article will explain what is the face value and its significance in helping you in choosing the best policy for your needs. By the end, you will have a better understanding of the benefits you are receiving from your current or future life insurance policy.

What is the face value of life insurance?

The face value of a life insurance policy is the amount that an insurance company agrees to pay out if the policyholder passes away, and it is agreed upon when the policy is purchased. The face value can often be referred to as the coverage amount, face amount, or death benefit. It can differ based on the policyholder's financial goals and needs and may be altered as their situation changes.

How to calculate the face value of life insurance? 

When calculating the face value of a life insurance policy, several factors are typically taken into account, such as the policyholder’s age, health, lifestyle, desired coverage amount, and type of policy being purchased. Here are some general steps you can follow to calculate the face value of your life insurance policy:

Determine the coverage needed: Think about the financial requirements of your beneficiaries if you were to pass away, including outstanding debts, funeral expenses, and living expenses. This will help you decide the amount of coverage needed.

Consider the policy type: Life insurance policies come in a few forms, including term life insurance and permanent life insurance. The face value of a term life insurance policy is often the same as the coverage amount, whereas that of a permanent life insurance policy could include a death benefit and a cash value accumulation feature.

Review health and lifestyle factors: Insurance companies consider the insured's age, health history, lifestyle habits, and occupation when deciding the face value of a policy. If you have any pre-existing medical conditions or engage in risky behaviours such as smoking or skydiving, you may face higher premiums or lower coverage limits.

Get quotes from multiple providers: Shop around and get quotes from various insurance providers to compare rates and coverage options. This can help you find the most suitable policy for your needs at an affordable price.

By calculating the face value of your life insurance policy, you can estimate the amount of money that you or your beneficiaries would receive in case of an unexpected event. 

Choosing a life insurance face value

When deciding on the face value offered, insurance companies will look at things such as age and health history to determine how much coverage will be provided to clients. Depending on the type of life policy being purchased, it's also important to consider the following factors:

Your financial obligations: It's important to evaluate your present and future financial responsibilities, such as unpaid debts, mortgage repayments, and daily living expenses. This analysis can assist you in determining the appropriate coverage amount required to guarantee your loved ones' financial security if you pass away.

Your income and earning potential: Consider your current income and earning potential over your lifetime. You may want to choose a face value that will help replace your income and provide financial support to your beneficiaries over a longer period of time.

Your budget: Consider how much you can afford to pay in premiums each month, and choose a face value that fits within your budget. It's important to remember that a higher face value will typically result in higher premiums.

Future needs and goals: Consider your future needs and goals, such as retirement planning, college tuition for your children, or charitable giving. You may want to choose a higher face value to account for these future financial obligations.

It's always a good idea to research different policies and to talk to an experienced insurance professional before making a decision - with so many options on the table, knowing you have life insurance is essential for ensuring peace of mind.

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Will the face value change over time? 

Generally speaking, no. The face value of a life insurance policy stays fixed throughout its lifespan. The face value is a predetermined amount that is agreed upon by the insured and the insurance company when the policy is purchased. Despite changes in the economic climate or other external factors, it remains constant over time.

However, there are certain types of life insurance policies that may allow for changes to the face value. For example, with some permanent life insurance policies, the face value may be tied to the cash value accumulation feature of the policy. As the cash value grows over time, the face value of the policy may also increase. Additionally, some policies may allow for the option to increase the face value through a rider or by adding-on additional coverage.

Life insurance face value vs. cash value? 

The face value and cash value of a life insurance policy are two separate components of the policy.

The face value is the amount your beneficiaries will receive in case of death. The face value is typically determined when the policy is purchased and will remain fixed for the duration of the policy's term.

Cash value, however, refers to the savings component that is built up over time as the insured pays premiums into the policy. The cash value grows tax-deferred and may earn interest or dividends, depending on the type of policy. Policyholders can access these funds during their lifetime if needed and even borrow against them — but keep in mind that doing so may come with extra fees and can reduce the total amount received by your heirs upon death.

The key difference between the face value and cash value of a life insurance policy is the time when the policyholder receives the money. The face value will be paid out to the beneficiaries upon the death of the insured, while the cash value is the amount that can be accessed by the policyholder during their lifetime.

What to Know Before Buying

When considering life insurance, it’s important to ask your provider questions about the face value. This is because the face value of a policy is the amount of money that will be paid out to your loved ones if you pass away. 

Additionally, asking questions about the face value can help you protect yourself financially in the future in case unexpected expenses or events arise. 

So before choosing a life insurance company, ensure that you thoroughly understand all aspects of their policies, especially the face value and its associated risks and rewards.

The Face Value of Life Insurance

When it comes to life insurance, understanding face value can be the difference between receiving the most out of your policy or losing out on potential income. 

With this comprehensive guide, you should now be able to answer questions about face value and identify how it can work for you. When you're considering signing up for a new policy, make sure you understand its stipulations and ask questions if needed.  

At Dundas Life we are always here to help answer any of your questions regarding face value or any other matter related to life insurance policies. So don't hesitate to contact us today and find out how we can help ensure that you get the best from your purchase!

Frequently Asked Questions

How do I increase the face value of a life insurance policy?

In some cases, you may be able to call your insurance company and ask for an increase. For example, if your salary has significantly increased since you bought your coverage — they may be willing to adjust your policy. If your insurance provider doesn’t want to increase your face value, you typically have two other options:

1. Purchase additional coverage: If you have a term life insurance policy, you can often purchase additional coverage to increase the face value of your policy. This may require you to undergo a new medical exam and answer health questions. The cost of the additional coverage will depend on several factors, including your age, health, and the type of policy you have.

2. Convert your policy: If you have a convertible life insurance policy, you may be able to convert it to a permanent life insurance policy, which typically has a higher face value. This conversion may require you to pay additional premiums or fees, but it may also provide you with additional benefits, such as cash value accumulation or the ability to borrow against the policy.

Before making any changes to your life insurance policy, it's important to carefully review your options and consult with a licensed insurance professional. They can help you evaluate your coverage needs, compare policies and providers, and determine the best course of action for your specific situation.

What is the best life insurance company for face value?

There is no one "best" insurance company when it comes to face value. The ideal insurance company for you will depend on a variety of factors, including your personal needs and preferences, your health and age, the type of coverage you need, and your budget.

When choosing an insurance company, it's important to research their financial stability and customer service ratings, as well as the specific products they offer and the terms and conditions of their policies. Working with a licensed insurance professional can also be helpful in identifying the best options for your unique needs and preferences.