Student Question from: Jacky A
Course:  Insurance

Student Question:

It says here that “Most policies will guarantee that the death benefit will never go below the face amount.” I thought that the death benefit and face amount are interchangeable terms. Is the death benefit equal to the face amount plus the cash value?

Instructor Response:

Very common question here. They are very similar and can indeed be the same thing throughout the life of the policy, but not always. The face amount is best thought of as the initial death benefit. It is the initial amount the policy will pay upon death. However, the final death benefit can fluctuate based on a number of reasons, some of which are listed below.

  • Riders such as an “Accidental Death Benefit” can double or triple the actual death benefit paid. Sometimes the death benefit is scheduled to increase or decrease according to a schedule.
  • If the policy is participating and dividends are used to purchase term insurance or paid-up additions, the death benefit will increase from the face amount of the policy.
  • Outstanding loans and interest on loans due reduce the death benefit paid.
  • Many companies pay interest from date of death, from the time a claim is filed, etc., which increases the death benefit paid.
  • UL policies that have a level at-risk portion of the policy and the death benefit increases as the cash value increases.