Death Benefits
The Dictionary of Insurance Terms and Definitions
A life insurance policy's death benefit is the money which a life insurance company pays to policy beneficiaries when an insured dies. To illustrate, if an individual keeps a life insurance policy on his or her spouse and if
The term "death benefit" is popularly used interchangeably with a life insurance policy's "face amount." After all, if you buy a policy whose face amount is one million dollars, you understand it will pay out a death benefit of one million dollars. However, there are two distinctions between "death benefit" and "face amount":
First, face amount exists only in an abstract sense. You'll never be paid a face amount. The indemnity which life insurance offers is a death benefit in the amount of a policy's face amount. This may seem like an immaterial distinction, but consider that every life insurance policy purchased carries some face amount, but most life insurance policies do not provide a death benefit (because the insured does not die during the policy's force).
Second, and more important, some policies may pay a death benefit which is different from their face amount. In the case of cash value policies, for instance, the policy owner can decrease the promised death benefit by taking money from the policy's cash value. The policy's face value remains constant, but the death benefit may not equal the face amount.
