What is the face value of a life insurance policy?

The face value, or face amount, of a life insurance policy reflects the policy's total monetary value, including your death benefit (the amount your beneficiaries will receive when you pass away) and any life insurance riders you have. If you borrow against your policy's cash value, the death benefit may be lower than the face value until you repay the loan. If you don't have any riders or you don't use your cash value, then the death benefit may equal your face amount.

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How to calculate your life insurance face value

Start by looking at your policy's benefits schedule, where your death benefit and any life insurance riders you have should be listed. Then, add up the value of your death benefit plus the value of any riders you have to calculate the face value.

If you borrowed against the cash value of a permanent life policy, then you should subtract the outstanding loan amount from your total benefits to determine your death benefit.

Example:You have a term life insurance policy with a $500,000 death benefit and a family income rider worth $100,000. However, you have an outstanding life insurance loan worth $50,000. The policy's death benefit is therefore $550,000, but its face value is $600,000.

Important note: Some life insurance riders can lower your policy's death benefit. For example, an accelerated death benefit rider allows you to access your death benefit after being diagnosed with a terminal illness. Once activated, your policy's death benefit will decrease by the amount of the death benefit you use.

Life insurance face amount vs. cash value

The face amount of a life insurance policy is different from its cash value. The face amount is the total monetary value of the policy, i.e., the maximum amount your beneficiaries may receive after you pass away. The cash value is a separate savings component of a permanent life insurance policy, such as whole or universal life, that the policyholder can borrow against or withdraw from, depending on the policy.

Using your policy's cash value may lower the death benefit since any outstanding loans or withdrawals will reduce your death benefit until you've repaid them.

Pro tip:

Depending on the type of policy or riders you have, it's possible to increase the face value of a policy over time. For example, a guaranteed insurability rider can allow you to bump up your coverage without a medical exam periodically.

How much life insurance face value should you have?

You should ideally have a life insurance policy with a face value that covers your family's financial obligations, plus enough to replace your income for a certain number of years. A general rule of thumb is to have a coverage amount that's 7 to 10 times your annual income, according to eFinancial. Use our life insurance calculator to estimate how much coverage you need.