When Is The Face Amount Of A Whole Life Policy Paid?

The face amount of a life insurance policy depends on the coverage the policyholder requires.

When it comes to permanent life insurance, understanding the timing of the face amount payout is crucial for policyholders and their beneficiaries. The face value, also known as the death benefit, represents the dollar amount the beneficiaries will receive upon the insured individual’s passing. In this article, we will explore the factors influencing when the face amount of a whole life policy is paid.

The face value of an insurance policy is directly linked to the premiums paid by the policy owner. Generally, higher premiums contribute to a larger death benefit, offering greater financial security to loved ones left behind.

Upon obtaining a permanent life insurance policy, the policy document specifies the initial face. The policy’s illustration table will outline any prospective changes to the face amount. Moreover, modifications can occur if the policyholder purchases additional insurance, paid-up additions (PUA), or withdraws cash value from the policy, potentially reducing the death benefit.

By examining these elements, individuals can understand when and how the face amount of a whole life policy is disbursed, allowing them to make informed decisions regarding their life insurance coverage.

Face Amount of Life Insurance

The face amount of a life insurance policy refers to the death benefit or the amount of money that will be paid out to the designated beneficiary upon the insured person’s death. It represents the coverage or protection provided by the life insurance policy.

When people purchase a life insurance policy, they choose a specific face amount they want their beneficiaries to receive in the event of their death. The face amount is typically determined based on factors such as the individual’s financial obligations, income replacement needs, and future expenses they want to cover.

 Image Source: Oregon Live
Image Source: Oregon Live

The purpose of the amount is to provide financial support to the beneficiaries after the policyholder’s death. The beneficiaries can use the funds for various purposes, such as paying off outstanding debts, covering funeral expenses, maintaining their lifestyle, or funding long-term financial goals.

It is important to note that the face amount of a life insurance policy differs from the premium. The premium is the amount the policyholder pays regularly to keep the policy active. In contrast, the face amount is the money the beneficiaries will receive upon the insured person’s death.

Face Amount vs. Death Benefit

The face amount is indeed the death benefit, but the death benefit may not always equal it.

Let me explain.

 Image Source: Seniors Life Insurance Finder
Image Source: Seniors Life Insurance Finder

In many insurance policies, there is an added benefit of riders that the policyholder may add to their existing policy. For example, a rider added to the policy that the death benefit would double in case of certain accidental death. That way, the death benefit will differ from the face amount.

Moreover, an increase in the cash value component will eventually increase the face value of the policy. But, if there are pending loans, the face value could be decreased, lowering the policy’s death benefit.

How do I determine the Face Value of a Life Insurance Policy?

There is no straight answer to this; determining the face value of a policy solely depends on the needs and requirements of the policyholder.

All you should be doing is making a list of your goals. What long-term objective do you aim to gain from your life insurance policy?

How much money will your spouse and family need to maintain a good life? How would they bear their future financial expenses; do you have a kid going to college in the next couple of years or a house mortgage that needs to be paid?

Do you have current debts that you still need a couple of years to pay back? If you die during this time, how much debt will be transferred to your family? Do you have any other pending loans?

How much coverage do you need? And this will again be decided by looking at your current family structure. If your kids are all married and not your dependents, you only need financial protection for your spouse. So you should look for a term life coverage of 10 years. But if you’ve just married and your kids are toddlers, a whole life policy is your best bet because you could use the cash value component to pay off their expenses when they’re off to college.

You must make sure you know the answers to all of these questions, and that is how you will be able to determine the face value of your life insurance policy. You will look for a lower face value if you don’t need more coverage.

The Influence of Face Value on Cost

The cost of a life insurance policy is significantly affected by its face value. In the case of permanent policies, there is both a face and a cash value, whereas term policies, which are initially more affordable, only have a face value.

To illustrate, let’s consider a scenario where an individual intends to purchase a term life insurance policy from company XYZ. They are expected to pay a higher premium for a policy with a face value of $500,000 than one with a face value of $100,000.

For example, the table below represents hypothetical premiums for various amounts of 20-year life insurance coverage for a 30-year-old male who is in good health and does not smoke.

Face Value Monthly Premium
$100,000 $10
$250,000 $15
$500,000 $25
$750,000 $34
$1,000,000 $42
$2,000,000 $77

What are Some of the Causes of Face Value Changes?

When it comes to the face value of your life insurance policy, it typically remains unchanged throughout its duration. You determine the specific amount when you purchase the policy, and it remains constant until the policy expires or until your death.

 Image Source: Canva
Image Source: Canva

However, certain circumstances can cause the face amount or the payout of your life insurance policy to increase or decrease.

  • Activating an accelerated death benefit rider: This rider allows you to access a portion of your policy’s payout (usually 25% to 95%) while you are still alive. It comes into effect if you are diagnosed with a serious illness that shortens your life expectancy or necessitates extensive care. The money you receive through this rider is subtracted from your death benefit, thereby reducing the face value of your policy. For example, if you have a $250,000 policy and withdraw 50% of the death benefit to cover medical expenses, you will receive $125,000 in cash. In contrast, your beneficiaries will receive the remaining $125,000 upon death.
  • Opting for a guaranteed insurability rider: This rider enables you to add coverage to your policy without undergoing another medical exam or answering health-related questions. By utilizing this rider, you can effectively increase the face value of your policy. Often referred to as a “guaranteed purchase option rider,” it allows you to acquire additional coverage at regular intervals or in response to significant life events, such as having a child.
  • Taking out a loan against your policy’s cash value: Permanent life insurance policies accumulate cash value over time, which can be borrowed against. While you are not required to repay the loan, the outstanding balance will be deducted from the death benefit upon your death to settle the debt with your insurer.
  • Requesting an increase in coverage: If you need more life insurance, some insurers may allow you to enhance your existing coverage. However, this usually entails going through the life insurance application process again, as the insurer assumes additional risk.
  • Decreasing the face value of your policy: On the other hand, many insurers are open to reducing the face value of your policy. With term life insurance, this adjustment often leads to lower premiums. In the case of permanent life insurance, sufficiently reducing the face value may result in the insurer considering the policy as “paid up.” This means you will no longer be required to pay premiums, but your coverage will remain in effect.
  • Owning a decreasing term life insurance policy: This type of insurance is associated with a decreasing face value until the term expires, although premiums may remain constant. Typically, decreasing term life insurance is tied to a debt that diminishes over time, such as a mortgage. Consequently, if you pass away during the term, the policy’s payout can be used to settle the outstanding debt.
  • Having a universal life insurance policy: Universal life insurance, also known as “adjustable life insurance,” offers flexible death benefits. You can increase or decrease the payout to align with your changing needs, which subsequently adjusts the face value of your policy. Variable universal life insurance shares this feature, but qualifying for additional coverage may require another medical examination.
  • Discovering dishonesty on your application: Falsifying information or omitting important details on your life insurance application constitutes fraud and can jeopardize the payout designated for your beneficiaries. If the insurer uncovers falsehoods or undisclosed preexisting conditions, it can reduce the death benefit or even deny the beneficiaries a payout.

When is the Face Amount of a Whole Life Policy paid?

Since it is clear that the face amount of the whole life policy is the death benefit or the original coverage, it is only paid after the policyholder dies.

Upon the insured’s death, the beneficiaries may come forward to claim the benefit. There is often a 30-90 days period during which the claim must be made. The insurance company may ask for documents of the policyholder, such as the contract and their death certificate. After that, when everything goes smoothly, the insurance company will give the full death benefit to the beneficiaries.

FAQs

Is the face amount the same as the death benefit?

The face amount, which represents the initial death benefit of a life insurance policy, may not remain constant over time. Changes in the policy’s cash value can cause the total death benefit to fluctuate, either increasing or decreasing, about the face value.

Can I access the cash value of my life insurance?

Yes, it is possible to withdraw the cash value from your life insurance policy. However, such action will result in a corresponding reduction in the death benefit. If you choose to withdraw (or surrender) the entire cash value, the policy will be terminated.

What does cash value life insurance entail?

Cash value life insurance is permanent with a separate cash value component, distinct from the death benefit. This cash value can be accessed through loans and withdrawals. It accumulates over the policy’s duration and provides policyholders additional financial flexibility.

How does the face value affect my insurance premiums?

Your life insurance policy premiums will be higher if you choose a higher face value. To ensure that your budget can accommodate the premiums, obtaining quotes for different face amounts is advisable while selecting your life insurance policy.

Which life insurance company is considered the best?

The answer to this question varies depending on your age, family needs, health condition, and other circumstances determining your life insurance requirements. However, it’s important to note that some life insurance companies offer superior products and services compared to others. To assist you in comparing leading providers, we have compiled a list of the top life insurance companies.

How can I increase the face amount of my life insurance policy?

To increase the face amount of your life insurance policy, you can contact your insurance provider and inquire about the possibility. In certain cases, if your income has significantly risen since purchasing the policy, your insurance company might be open to adjusting it. However, this adjustment may necessitate a new underwriting process, including a medical examination. Additionally, your premiums will increase as a result.

Conclusion

The face amount of a whole life insurance policy is the death benefit, but it doesn’t need to remain the same from when the policy was signed. The face amount can change with an increase or decrease in the policy’s coverage or nature.

The death benefit is only given to the beneficiaries after the insured has died, but the cash value can be withdrawn or borrowed, tax-free, even during the policyholder’s life. Of course, it takes almost 20 years for the cash value to gain enough funds to pay for major expenses during their life.

John Otero

John Otero

John Otero is an industry practitioner with more than 15 years of experience in the insurance industry. He has held various senior management roles both in the insurance companies and insurance brokers during this span of time. He began his insurance career in 2004 as an office assistant at an agency in her hometown of Duluth, MN. He got licensed as a producer while working at that agency and progressed to serve as an office manager. Working in the agency is how he fell in love with the industry. He saw firsthand the good that insurance consumers experienced by having the proper protection. John has diverse experience in corporate & consumer insurance services, across a range of vocations. His specialties include Major Corporate risk management and insurance programs, and Financial Lines He has been instrumental in making his firm as one of the leading organizations in the country in generating sustainable rapid growth of the company while maintaining service excellence to clients.