While it usually remains constant, there are a few circumstances that can cause a change in face value.

What is the face value of life insurance?

The face value is the sum of money that your insurer has agreed to pay out if you die. When you purchase a life insurance policy, you select the face amount, which is stated in your contract.

The face value is typically the amount that your life insurance beneficiaries will receive if you die while your policy is still in force. So, if you purchase a policy with a face value of $500,000, your life insurance company will usually pay out $500,000 to your beneficiaries when you die.

Choosing the right life insurance face amount

The goal is to select a policy that you can comfortably afford and that will allow your beneficiaries to maintain their current standard of living.

Here are a few things to think about:

Your coverage needs. Consider your current expenses, such as rent, mortgage, or credit card payments, groceries, bills, child care, and schooling, to determine how much life insurance you require. Next, consider any future expenses you expect to incur, such as college tuition or care for aging parents. Ideally, you should get a policy that matches the dollar amount you end up with. Another method is to take your salary and multiply it by ten or fifteen. If you earn $50,000 per year, you may want to consider a policy with a face value of $500,000 or $750,000.

Your budget. In general, the higher your insurance premiums will be, the greater the face value of your policy. When you've determined how much coverage you require, compare life insurance quotes to find the best deal.

The amount of life insurance for which you are eligible. Some types of life insurance have dollar limits. For example, funeral, burial, and end-of-life costs are typically covered by final expense life insurance policies, which typically range from $2,000 to $25,000 in value.

In other cases, you must meet the following requirements to be eligible for a certain level of coverage:

• You're submitting an application for a large life insurance policy. Do you want to buy a million-dollar life insurance policy, or even a million-dollar life insurance policy? Expect your insurer to ask for proof of your income or net worth to justify the need for such a large policy as well as your ability to pay premiums.
• You’re in poor health. If you are purchasing life insurance with a pre-existing medical condition, your coverage options may be limited.

When your face value might change

Typically, the face amount of your life insurance remains constant. You choose that dollar amount when you purchase the policy, and it remains constant until the policy expires or you die.

However, there are a few factors that can cause the face amount — or at least the life insurance payout — to fluctuate.

You activated an accelerated death benefit rider

An accelerated death benefit rider allows you to access a portion of your policy's payout while you're still alive — typically 25 percent to 95 percent. It usually applies if you've been diagnosed with a serious illness that reduces your life expectancy or necessitates extraordinary or round-the-clock care.

The funds are then deducted from your death benefit, potentially lowering the face value of your policy. Assume you have a $250,000 policy and decide to withdraw half of the death benefit to cover medical expenses. You will receive $125,000 in cash, and the remaining $125,000 will be distributed to your beneficiaries when you die.

You chose the guaranteed insurability rider.

This rider enables you to add coverage to your policy at any time without having to take another life insurance medical exam or answer health questions, effectively increasing the face value.

The rider, also known as a "guaranteed purchase option rider," usually allows you to buy more coverage at regular intervals or when you have a major life event, such as having a child.

You took out a loan against your policy’s cash value

One of the advantages of permanent life insurance is the ability to accumulate cash value over time. When you have enough cash value in your policy, you can start borrowing against it.

While you are not required to repay the loan, the outstanding amount will be deducted from your death benefit when you die in order to repay your insurer.

You asked to increase your coverage

Do you require more life insurance? Some insurers will allow you to increase your existing coverage, but you will usually have to go through the life insurance application process again because the insurer is taking on more risk.

You reduced the face value of your policy.

On the other hand, most insurers will let you reduce the face value of your policy.

If you have a term life insurance policy, you will most likely pay a lower premium. In addition, if you significantly reduce the face value of a permanent life insurance policy, your insurer may consider you "paid up." This means you won't have to pay any premiums, but your coverage will remain in effect.

You own a decreasing term life insurance policy

With decreasing term life insurance, the face value of your policy decreases over time until your term expires (though premiums may stay the same).

This type of insurance is usually linked to a debt that will be paid off over time, such as a mortgage. If you die during the term, your loved ones will be able to pay off the debt with the proceeds of your policy.

You have a universal life insurance policy

Universal life insurance, also known as "adjustable life insurance," provides flexible death benefits. You can adjust the payout to meet your needs, which changes the face value of your policy.

This benefit is also available with variable universal life insurance. Just be aware that you may need to take another medical exam to qualify for additional coverage.

Your insurer finds out you lied on your application

It is a form of fraud to lie or omit information on your life insurance application. Furthermore, it may jeopardize the inheritance you intend to leave to your loved ones. `

If the insurer discovers that you lied on your application or failed to disclose a pre-existing condition, the death benefit may be reduced or denied entirely.

What’s the difference between face value and cash value?

Every life insurance policy has a face value, but only a subset of them has a cash value. This is the investment portion of a permanent policy, and you can usually access it after two to five years of policy ownership.

While the cash value of your life insurance policy accumulates interest over time, it usually has no effect on the face value of your policy.

Key features of face value vs. cash value