Face amount

The Dictionary of Insurance Terms and Definitions

For general purposes, a life insurance policy's "face amount" is interchangeable with "death benefit."  So why is there a completely different term for it?  Well, there are two ways in which "face amount" differs from "death benefit":

The first (and simpler) difference is that a death benefit is an actual payment, an actual sum of money; a "face amount" is just a number, describing the value of the death benefit.  In practical terms, a life insurance beneficiary doesn't receive a "face amount" when the insured party passes on.  The beneficiary receives a death benefit.

The second difference is that the amount of money paid in a death benefit can be different from (more or less than) the face amount of the policy.   This is not the case for all types of life insurance, however.  In ordinary term life insurance, for example, the death benefit will always be equal to the policy's face amount.  It is only in cash value life insurance that the death benefit may differ from the face amount.

What's the face amount?

The face amount is the dollar amount of life insurance coverage that you enter into an application or quote form.  Once the policy goes into force, its face amount will remain constant.

When the death benefit < the face amount

With cash value life insurance, the policy owner can take a policy loan or withdrawal from his/her policy's cash value.  Either of these actions will reduce the policy's death benefit, just as they reduce the cash value, dollar-for-dollar.

A policy loan can be repaid in order to return the death benefit to its previous size.  A withdrawal cannot be repaid.  (However, the cash value, at least can be restored.  Withdrawals are only possible with universal life insurance, and universal life insurance allows policy owners to pay premiums in whatever amount they please.  In universal insurance, premiums pass directly into cash value.)

When the death benefit > the face amount

When you create a life insurance policy, you may have several options of death benefit from which to choose (depending on which of the three main types of life insurance you purchase).  Two types of death benefit actually return a value greater than a policy's face amount.  Increasing benefit life insurance pays a death benefit equal to the policy's face amount, plus its cash value.  Variable benefit life insurance pays a death benefit equal to the policy's face amount, plus a refund of all premiums paid.