what is the difference between the face value and death benefit in whole life policy
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Asked July 10, 2015
At the beginning of the policy, the face value and the death benefit are the same: they both reflect the amount of money that the insurance company will pay out in the case of a valid claim. However, as time goes by they can begin to diverge.
The face value never changes. It remains at the same level from the beginning of the insurance contract until the end. On the other hand, the death benefit can change depending on the terms of the contract. For example, if the policy allows for taking out loans against the value of the contract, then the death benefit decreases when you take out a loan.
In general, the death benefit and the face value only differ when there are special features in the contract that allow for this to happen. The aforementioned loans are one example. Another is the possibility of a death benefit that increases over time. This would case the death benefit to rise above the face value. When the insurance company processes a claim, it will pay out the death benefit, not the face value, so if they are different, then the death benefit is the more important number. You should examine your policy carefully so that you understand how the death benefit might change over the course of the contract and what that means for you.
Answered July 10, 2015 by Anonymous