The face amount of a life insurance policy is the death benefit. This is the amount of money someone will receive after your death. You name the individual as your beneficiary. You can usually choose the policy to be in the amount of money you desire. Determining how much to choose for the face amount can be a challenge. You need to consider your family's needs. You also need to consider your overall goals for the policy.
Here's an Example:
Sue decides to buy a life insurance policy. She selects a $1 million policy. The face amount of the policy is $1 million. Her son is the named beneficiary on the policy. If she dies while the policy remains in place, her son will receive $1 million. He can use those funds for any need he has. That gives the son the financial support necessary to maintain his quality of life.
Face Amount and Value Are Not the Same
Do not confuse the value of a life insurance policy with the face amount. The value of a life insurance policy is the actual worth if sold or cashed in. This might differ from the face value. Not all policies offer this feature. However, some permanent or whole life insurance policies do. Some individuals may not wish to continue to pay into the policy long term. They wish to sell it back to the company. This is a life insurance settlement company. They usually pay an amount less than the face amount of the policy.
Let's say Sue decides she no longer wants to maintain the policy. She's older. Her son is no longer her dependent. She put a great deal of money in the policy throughout her lifetime. Now, she plans to sell it to a settlement company. The value of the policy is the amount she may obtain from the company. This is usually less than what she put into the policy throughout her lifetime. Still, it is cash in hand. She can use it for any needs she has.
Work with your life insurance provider to set up your policy. With the right guidance, you ensure the face amount matches beneficiaries' needs. Choose a value that represents their financial dependency on you at this time. You can change this throughout your lifetime. Discuss whether you want to have a policy that builds value with your agent. Your life insurance agent can help you to create that. For more information, you can explore our website for life insurance resources.