Term Life Insurance Face Value Definition

The face value of term-life is the amount paid to the beneficiaries.

Term-life insurance is life insurance that strictly provides protection without the accumulation of any cash value over time. An attractive feature of term insurance is that it is usually the cheapest form of life insurance since the insurance company does not need to provide a cash fund. A term insurance policy pays a benefit upon death, also known as its face value.

Function

The face value is the amount of life insurance benefit that is purchased by the policyholder. When the policyholder dies, his beneficiary will receive the policy's face amount. For example, if the policyholder purchases a level-term 30-year policy with a face value of $100,000 and he dies in the ninth year, his beneficiary will receive $100,000.

Benefits

Because term life builds no cash value, the beneficiary will likely receive the full face value when the policy dies. This differs from whole life, where the amount of any outstanding loans against the cash value that have not been repaid at the time of the policyholder's death will be deducted from the policy's face value. As with most forms of life insurance, the beneficiary also receives the policy proceeds on a tax-free basis.

Types

The type of term-life policy will determine the amount of face value at any given time. For example, with a level-term policy, the face value remains the same throughout the life of the policy. In a decreasing-term policy, which is often purchased to cover a home mortgage, the face value decreases to coincide with the decrease in the mortgage amount over the years.

Time Frame

Unlike permanent life insurance where insurance is designed to stay in force throughout the policyholder's lifetime regardless of how long she lives, the face value of a term policy is only available for a certain number of years. Common term insurance increments include 10, 20 or 30 years.

Considerations

Even if you purchased a whole-life policy, a term insurance face value could still come into play. For example, if you quit paying the premium, the policy's non-forfeiture provision will kick in, meaning that coverage will remain for a specified period of time based on the amount of accumulated cash value. In most life insurance policies, an extended-term policy is the default non-forfeiture option. An extended-term policy will provide the same face value as the whole-life policy.

References

• Financial Web: Term Life Insurance
• AAA Life Insurance Insurance Company: Glossary of Life Insurance Terms