What's the Difference Between Cash Value and Face Value

What’s the Difference Between Cash Value and Face Value?

October 1, 2019

From beneficiary to custodian, when you’re looking into life insurance coverage, you’re inevitably going to be faced with a number of potentially confusing terms that could cause some trouble in your quest to find the right life insurance coverage for you. If you don’t know the lingo to decode your policy, you could find yourself confused or misinformed about what that coverage will really mean for you down the line.

If you’ve been looking into the specifics of life insurance coverage, you’ve likely come across these two terms: cash value and face value. While these two terms sound very similar, they mean very different things to both you and your beneficiaries. Let’s take a closer look at these two terms and how they relate to your whole life insurance coverage.

Cash Value

When you have a whole life insurance policy, a portion of your premium goes into paying the cost of the insurance, while the remainder goes into a cash fund account that builds tax-deferred interest over time. Cash value, sometimes referred to as “account value”, is the total sum of money that accumulates in a cash value whole life insurance policy. Think of it as the amount of money in this particular account. 

Depending on your policy, you may be able to utilize this cash value for other purposes while you are still living. You can “cash out” on the policy to receive the cash value, though this will terminate your life insurance coverage. You can also borrow funds from the cash value with a low interest rate at any time. However, if you do not repay these cash value loans, they will be subtracted from the death benefit amount.

Another term that often comes up in discussions of cash value is “surrender value”. This is the sum of money that you would receive if you were to attempt to access a policy’s cash value. Because insurers typically do not want you to terminate your policy early, there are often charges or fees associated with early termination, and the surrender value would be the remainder of the cash value after these fees have been taken out.

Face Value

Face value, on the other hand, is not a living benefit. The face value of a life insurance policy is the stated dollar amount that the insurance company pays out to the beneficiary upon the insured’s death. You may also know it as the “death benefit”.

The face value of a policy is an important determining factor in the policy’s cost. The higher the face value, the higher the premiums will be. In addition, face value is not static; there are several things that can cause it to change. You can supplement your face value with riders, which are additional benefits that you can purchase (for example, a disability income rider will give the insured a source of additional income if he or she becomes disabled and cannot work). Face value could also change if the accumulated cash value grows large enough to cause a change in face value, or if there are unpaid loans on the policy.

We hope this guide has helped to clear up any confusion you may have had about cash value versus face value. If you have any further questions about life insurance coverage, don’t hesitate to contact a life insurance agent today.

About National Catholic Society of Foresters

At National Catholic Society of Foresters, we pride ourselves on giving back to the communities that we serve by providing quality and comprehensive insurance solutions. Sales from our financial services products help fund member benefits along with social, educational, and volunteer programs designed to respond to community needs. Our portfolio is extensive, ranging from various life insurance policies to IRA’s to support your financial needs no matter what stage of life you’re in. For more information, contact our friendly experts today at (855) 804-7424.