Term Life Insurance Articles
Understanding The Face Value Of A Term Life Insurance Policy
2011-08-14
Perhaps the most important aspect of a term life insurance policy, the face value, is the stated benefit of a policy. It's the amount that will originally be paid out after the policy holder's death. Face value is fairly simple for term life insurance plans as compared to other types of life insurance, which may also have an investment component tied to the policy's face value. Even so, there are a few important things to know when considering the face value of a term life insurance policy.
One common misconception is that the face value of a life insurance policy is the exact amount of money that will be paid out to beneficiaries as a death benefit. Face value is set at the beginning of a policy, but the actual death benefit can change over time due to a number of clauses in standard life insurance policies. Some policies lose value as the policy holder ages. This is common in a decreasing term life insurance policy, in which benefits decrease each year until the policy expires. Some standard level term life insurance policies also have an age clause that cuts benefits after the policy holder reaches a certain age. Age clauses are also common in other types of life insurance such as whole life insurance. The age clause helps to protect the insurance company from a large payout as death becomes more likely late in a policy, and policies with these types of clauses are usually less expensive than policies without them.
The death benefit of a term life insurance policy can also go up, although this is less common. A double indemnity clause could increase policy's payout. Double indemnity clauses usually state that twice the benefits will be paid out if the policy holder dies due to an accident. They can quickly increase the face value of a policy, but they're more affordable than simply buying twice the coverage since payouts are based on the circumstances of the policy holder's death. Most policies don't have an automatic double indemnity clause; it has to be built into a contract and will cause a slight increase in term life insurance rates.
The face value of a term life insurance policy should be considered against the policy's costs and various clauses to determine whether the policy is a good deal. The best term life insurance agreements have a high face value with few clauses that restrict payouts and affordable, fair policy premiums. By comparing rates and by reading through insurance quotes carefully, insurance buyers can find inexpensive term life insurance policies that meet these criteria.
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Perhaps the most important aspect of a term life insurance policy, the face value, is the stated benefit of a policy. It's the amount that will originally be paid out after the policy holder's death. Face value is fairly simple for term life insurance plans as compared to other types of life insurance, which may also have an investment component tied to the policy's face value. Even so, there are a few important things to know when considering the face value of a term life insurance policy.
One common misconception is that the face value of a life insurance policy is the exact amount of money that will be paid out to beneficiaries as a death benefit. Face value is set at the beginning of a policy, but the actual death benefit can change over time due to a number of clauses in standard life insurance policies. Some policies lose value as the policy holder ages. This is common in a decreasing term life insurance policy, in which benefits decrease each year until the policy expires. Some standard level term life insurance policies also have an age clause that cuts benefits after the policy holder reaches a certain age. Age clauses are also common in other types of life insurance such as whole life insurance. The age clause helps to protect the insurance company from a large payout as death becomes more likely late in a policy, and policies with these types of clauses are usually less expensive than policies without them.
The death benefit of a term life insurance policy can also go up, although this is less common. A double indemnity clause could increase policy's payout. Double indemnity clauses usually state that twice the benefits will be paid out if the policy holder dies due to an accident. They can quickly increase the face value of a policy, but they're more affordable than simply buying twice the coverage since payouts are based on the circumstances of the policy holder's death. Most policies don't have an automatic double indemnity clause; it has to be built into a contract and will cause a slight increase in term life insurance rates.
The face value of a term life insurance policy should be considered against the policy's costs and various clauses to determine whether the policy is a good deal. The best term life insurance agreements have a high face value with few clauses that restrict payouts and affordable, fair policy premiums. By comparing rates and by reading through insurance quotes carefully, insurance buyers can find inexpensive term life insurance policies that meet these criteria.
