Understanding Face Value Life Insurance Policy Definition

  • Billy Cobb
  • Jan 23, 2024
Understanding Face Value Life Insurance Policy Definition

What Is Face Value Life Insurance Policy?

Face value life insurance policy, also known as death benefit insurance, is a type of insurance policy in which the insurer pays out a predetermined sum of money to the beneficiaries named by the policyholder in the event of their death. The face value refers to the amount of coverage that the policy provides, which is specified at the time of purchase and remains fixed throughout the policy’s duration. This means that regardless of when the policyholder dies, the same amount will be paid out to the beneficiaries.

These types of policies are typically sold to individuals who are seeking to provide financial security for their loved ones in the event of their untimely death. Face value life insurance policies are not meant to act as an investment vehicle, but rather as a safety net for the policyholder’s dependents if they pass away unexpectedly. Unlike some other types of life insurance policies, face value policies do not accumulate cash value over time and are typically less expensive than other types of policies that do.

How Does A Face Value Life Insurance Policy Work?

When a person purchases a face value life insurance policy, they must choose a death benefit amount, which is the amount of money their beneficiaries will receive in the event of their death. The policyholder also pays a premium, which is typically paid monthly or annually. In exchange for these payments, the insurer agrees to pay out the death benefit to the beneficiaries when the policyholder dies, as long as the policy is in force and all premiums have been paid.

The amount of the premium is based on a number of factors, including the policyholder’s age, health, and family medical history. The insurer will typically require the policyholder to undergo a medical exam to determine their overall health and any pre-existing conditions which may affect the policy’s cost. Younger, healthier individuals typically pay lower premiums than older, less healthy individuals, since they are less likely to die during the term of the policy.

Who Should Consider A Face Value Life Insurance Policy?

Face value life insurance policies can be a good option for individuals who have dependents that they would like to provide for in the event of their death. This might include spouses, children, elderly parents, or other family members who rely on the policyholder for financial support. Anyone who has a mortgage or other debts that would be difficult for their family to pay off without their income should also consider a face value policy.

These policies can also be a good option for individuals who are seeking to provide for their funeral and other end-of-life expenses, as the death benefit can be used to cover these costs. Additionally, older individuals who would like to guarantee that their beneficiaries will receive a set amount of money in the event of their death may also consider a face value policy.


Face value life insurance policies are a simple and straightforward way to provide financial security for loved ones in the event of the policyholder’s death. By paying a regular premium, policyholders can ensure that a set amount of money will be paid out to their beneficiaries upon their death, which can be used to cover expenses like funeral costs, outstanding debts, or simply to provide for their dependents. While these types of policies are not meant to act as investment vehicles, they can be an effective way to ensure peace of mind and financial security for yourself and your loved ones.

How Does it Work?

Face value life insurance policies are a type of permanent life insurance. This means that, unlike term life insurance policies which provide coverage for a specific term, face value policies offer coverage for the entirety of your life. When you buy a face value life insurance policy, you’ll need to provide the insurance company with some basic information about yourself, including your age, health, and lifestyle habits that could impact your life expectancy. Based on this information, the insurance company will determine the cost of your premium.

Once you’ve purchased your policy and have been making premium payments, the insurance company will pay your beneficiary the policy’s face value amount if you die while the policy is in effect. Most insurance companies only require proof of death from a death certificate to start processing the benefit payment. The death benefit can then be used by your beneficiary in any way that they see fit. While it’s often used to cover expenses like funeral costs and outstanding debts, it can also be used to help your beneficiaries maintain their lifestyle after your death.

One of the key benefits of a face value life insurance policy is that the death benefit is guaranteed. As long as you continue to pay your premiums, the insurance company cannot reduce the amount of the death benefit outlined in your policy or cancel it altogether. Additionally, some policies offer a cash value component that grows over time, allowing you to borrow against it or withdraw it if needed.

It’s important to note that face value life insurance policies tend to be more expensive than term life insurance policies due to their expanded coverage and guaranteed benefits. However, they can provide added peace of mind knowing that your beneficiaries will be taken care of financially if something happens to you. If you’re considering purchasing a face value life insurance policy, it’s important to shop around and compare rates from multiple insurance companies to find the best policy for your needs and budget.

Who is it for?

Face value life insurance policy is a type of life insurance policy that provides financial protection to individuals and their families in the event of their untimely demise. It is best suited for individuals who are the primary breadwinners of their family and want to ensure that their loved ones are financially secure in their absence. This policy is particularly beneficial for those who have dependents, such as young children, elderly parents, or disabled family members who rely on them financially.

It is also ideal for entrepreneurs or business owners who have outstanding debts, such as business loans or mortgages, and want to ensure that their business operates efficiently in their absence. In such cases, the face value of the life insurance policy can be used to pay off any outstanding debts, ensuring smooth business operations.

Furthermore, individuals who have a high net worth and want to ensure that their estate and legacy are protected can also opt for a face value life insurance policy. It can provide their heirs with a sizable inheritance that can be used to maintain their lifestyle or fund their future goals.

Overall, a face value life insurance policy is for individuals who want to be proactive about securing the financial wellbeing of their loved ones or business in the unfortunate event of their death.

Types of Face Value Life Insurance Policies

When buying life insurance, one of the fundamental decisions you’ll have to make is whether to choose a term life insurance policy or a permanent one. Each kind of policy has its pros and cons, but they share the common characteristic of offering coverage tied to a set face value. In this article, we’ll go over the specifics of each type of policy to help you make an informed decision when it comes to purchasing life insurance.

Term Life Insurance

Term life insurance is the cheaper of the two types of policies, and it covers you for a specific period, usually between five and thirty years. The ‘term’ refers to the duration of the coverage and how long the insurer is contractually obligated to pay out a death benefit in case the insured person passes away. If the insured person outlives the term, they will need to renew the policy, usually at a higher rate corresponding to their increased age. A term life policy does not accumulate any cash value. It’s a straightforward policy that pays out a set death benefit if the policyholder passes away during the coverage period.

Term life policies are an excellent option for those seeking affordable coverage and who have a specific coverage goal in mind, such as paying off a mortgage or college tuition. It’s important to note that once the term expires, the policyholder will have to purchase a new policy at a higher age-based rate, and any pre-existing health conditions will be taken into account, potentially resulting in higher premiums or even disqualification for coverage. This is why it’s essential to consider term-to-permanent life insurance conversions if you are looking for longer-term coverage with the option of accumulating cash value.

Permanent Life Insurance

Permanent life insurance, as the name suggests, covers you for life. It offers both a death benefit and an investment component that accumulates cash value. Unlike term life insurance, the premiums of permanent life insurance are set, so the policyholder pays the same rate for the duration of the policy. The two most common types of permanent life insurance are whole life insurance and universal life insurance.

Whole life insurance is the more traditional type of permanent life insurance, and it guarantees a constant death benefit while also accumulating cash value. The premiums of a whole life policy are typically higher than that of term life insurance since it’s built to last for the policyholder’s entire life.

Universal life insurance, on the other hand, offers more flexibility in terms of premiums and death benefits. With universal life insurance, the policyholder can increase or decrease their death benefit and premium payments at any time. Additionally, universal life insurance allows the policyholder to borrow against the cash value of the policy or even withdraw funds entirely. However, these actions will result in adjustments to the death benefit and cash value, so it’s essential to speak with your insurance agent to properly understand the consequences of these actions.

The investment component of permanent life insurance can help policyholders build wealth over time, but as with any investment, there is an inherent risk involved. The accumulation of cash value can be affected by inflation rates, interest rates, and other economic factors. It’s crucial to work closely with a licensed insurance agent to ensure that your permanent life insurance policy aligns with your overall financial goals and that it’s financially feasible for you, both in the short and long term.


Choosing the right face value life insurance policy for you and your family requires careful consideration. When deciding between term life insurance and permanent life insurance, consider factors such as your budget, future needs, and long-term financial goals. A licensed insurance agent can help you compare policies and explain the details of each type of policy, so you can make an informed decision. Regardless of which type of policy you choose, having life insurance is a crucial part of protecting your family’s financial security.

Originally posted 2023-05-23 15:50:53.

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