The face value of a life insurance policy is basically the amount of insurance you are buying and is determined when it is purchased. If you purchase a $1 million policy, then the face value is $1 million. When you purchase life insurance, it’s important to know what you expect it to be used for and whether the amount can sufficiently cover those expenses and costs. When you are ready to purchase your policy, asking questions will help you make a wise decision. Your insurance advisor will always be there to answer your questions and offer you the advice you need to make a good choice for your family’s future. This article will help you understand the face value of your insurance policy better.
What Is the Face Value of Your Life Insurance Policy
Face value is a technical term used for the death benefit amount that you are paying through your premiums. The face value amount of your policy will determine what your premiums are as well as any other fees that need to be paid. The higher the face value of your policy, the higher your premiums will be. Understanding the correlation between these two amounts is the key factor in knowing how life insurance works. Many people confuse face value and cash value. It’s essential that you know the difference and how each one affects your death benefit.
How Does Face Value of Your Policy Work?
When you buy a life insurance policy, you buy it at its face value. The face value is the amount of death benefit you will receive once the policy matures and you pass away. However, there are times when the face value of the policy will change. Renewable term life policies can be renewed, for example, if they reach maturity and you are still alive and well. You also have policies that decrease in coverage and others, like the accelerated death benefit, that allows you to access some of the cash value of your policy long before it actually reaches maturity.
Face Value of a Policy vs. Its Cash Value
The face value of your policy is the amount you are paying when you submit your premiums. The cash value is the amount of equity you build within your policy with each premium you pay. With some life insurance policies, you may be able to borrow against the equity or cash value portion of your policy. While not all policies will allow you to do this, those that do give you several options on how to pay the money back. With some policies, you may not be required to pay any of it back. With others, you make payments along with your monthly premium.
Understanding your life insurance policy’s face value and cash value is important. You will know exactly how much you have available if something happens to you and your family needs to survive. Call our insurance experts at Randy Jones Insurance Services if you have any questions. We can help you figure out what values you have with your current policy and can help you increase or decrease them as needed.