Life insurance policies can range from being fairly simple, as is the case with term life insurance, to a bit more complex, such as with a whole life insurance policy. With a term life insurance policy, if you die within the period you are covered, your beneficiaries receive a predetermined amount. With a whole life policy, your beneficiaries also receive a predetermined amount of money if you die, but the insurance policy is likely to have an additional cash value as well, especially if you had the policy for any length of time.
Face Value
Regardless if you have a term life policy or a whole life policy, the face value of your policy is simply the amount of money your beneficiaries receive if you die while insured. The face value is sometimes referred to as the death benefit amount.
Cash Value
The cash value of a life insurance policy is different than the face value. A cash value for a policy occurs only in whole life policies, as a portion of the premium payments are set aside in a separate account that is invested by the insurance company. Over time, the account will accumulate a cash value that can be borrowed against or withdrawn if the policyholder decides to turn in, or surrender, his life insurance policy.
Considerations
It is possible to purchase a type of term life insurance policy that has a declining face value. The positive aspect of this type of policy is that you will get to keep your premium payments at an equal amount as opposed to having them increase as you age. Often called declining balance term life insurance, these types of policies are often purchased when buying a house. The face value will then decrease as less money is owed on the mortgage.
Potential
It is possible to receive the face amount of your life insurance policy if you are still alive at the age of 100. While whole life insurance is typically referred to as insurance for your entire life, many policies will be written to end on your 100th birthday. If your policy ended on your 100th birthday you would receive the cash value of the account, which would be equal to the face value.
Warning
Taking out loans against your life insurance policy will not reduce the face value of the policy, but any outstanding loans at the time of your death would result in the repayment of the loans coming from the death benefit amount due to your beneficiaries.
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