What is the face amount of a life insurance policy?

How can you determine your life insurance face amount?

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 the death benefit.

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.

What's the life insurance face amount vs. the 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.

What's the difference between the life insurance face amount and the death benefit?

The face amount of life insurance is the amount stated on your life insurance policy. For example, if you buy a basic $200,000 term life policy, $200,000 is the face value. The death benefit is the amount your beneficiaries receive when you die, which may be the same as the face amount, or it may differ, depending on your policy and your actions. If you received any advances or paid for riders on your policy or also withdrew any cash value from the policy, that will decrease the death benefit. The death benefit proceeds also exclude any cash you borrow from the policy.

What should your life insurance face amount be?

You should ideally have a life insurance policy with a face value that covers your household's overall 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.

You may want to review the face amount periodically. Changing life events, such as marriage or the birth of a child, may prompt updates to the face amount or additional coverage as your policy allows. (Term and whole life policies may require a rider you elect that lets you adjust the coverage amount.) Your income may also increase over time, so you may want to add more coverage to reflect your new income.

Get life insurance through Progressive