When it comes to life insurance, there are two main types of policies: those with a face amount and those with cash value. So which is right for you?
In this personal finance guide, we will compare both options and look into the advantages and disadvantages of each. By the end of this article, you will know exactly which type of life insurance policy is best for your needs!
Life Insurance Face Amount Vs Cash Value Table of Contents
What is a Life Insurance Face Amount?
A life insurance face amount is the death benefit that your beneficiaries will receive upon your passing. This is the amount of money that they will use to cover funeral costs, pay off debts, and support themselves financially in your absence.
What is a Cash Value?
A cash value is essentially a savings account that is attached to your life insurance policy. The money in the account grows tax-deferred, and you can borrow against it or withdraw funds from it if you need to.
What is The Difference Between a Life Insurance Face Amount and a Cash Value?
The face amount is the death benefit that your beneficiaries will receive upon your passing. The cash value, on the other hand, is the savings account component of your life insurance policy that you can access while you’re alive.
What Are The Different Types of Life Insurance Face Amount?
There are two types of life insurance face amounts:
Term life insurance covers you for a specific period of time, usually between five and 30 years.
Permanent life insurance covers you for your entire life.
What Are The Different Types of Cash Value?
There are three different types of cash value:
- Whole Life Insurance
- Universal Life Insurance
- Variable Universal Life Insurance
Whole Life Insurance
Whole life insurance is the most basic type of cash value policy. It has a set premium that you pay every month, and it accumulates a cash value over time. The cash value can be used to pay the death benefit if you die, or it can be withdrawn for other purposes.
Universal Life Insurance
Universal life insurance is a more flexible type of cash value policy. The premium is not set, and the cash value can be invested in different ways to grow more quickly. The death benefit is also variable, so it can be used to pay for things like long-term care insurance.
Variable Universal Life Insurance
Variable universal life insurance is the most flexible type of cash value policy. The premium is not set, and the cash value can be invested in different ways to grow more quickly. The death benefit is also variable, so it can be used to pay for things like long-term care insurance.
What Are The Advantages of a Life Insurance Face Amount?
There are a few advantages to having a life insurance face amount. One is that you are generally able to get a higher payout than with cash value life insurance. This can be important if you have significant debts or other financial obligations that you want your loved ones to be able to cover in the event of your death.
Another advantage of a life insurance face amount is that it is typically much easier to qualify for than cash value life insurance. This means that you may be able to get coverage even if you have some health issues that would make it difficult to qualify for cash value life insurance.
Finally, face amounts tend to be more affordable than cash value life insurance policies. This can be important if you are on a tight budget and need to keep your life insurance costs as low as possible.
What Are The Advantages of a Cash Value?
There are several advantages of a cash value life insurance policy over a face amount policy. One advantage is that you can borrow money against the cash value of your policy. This can be useful if you need to make a large purchase or have an unexpected financial emergency.
Another advantage of a cash value policy is that it builds up equity over time. This equity can be used to help pay for retirement or other long-term financial goals.
Finally, a cash value life insurance policy provides a death benefit to your beneficiaries. This death benefit can be used to help them cover expenses such as final medical bills or funeral costs.
What Are The Disadvantages of Life Insurance Face Amount?
There are a few disadvantages to having life insurance face amount.
One is that if you pass away, your beneficiaries will only receive the face value of the policy and not the cash value. This can be a problem if your family is relying on the death benefit to cover final expenses or other debts.
Another disadvantage is that you may have to pay taxes on the death benefit if it is more than the cash value.
Finally, if you cancel your policy, you will not receive any of the cash value that you have accumulated.
What Are The Disadvantages of Cash Value?
There are a few disadvantages of the cash value that you should be aware of before making your decision.
The first is that cash value generally grows at a slower rate than the face amount. This means that if you die early, your beneficiaries may not receive as much as they would with a face amount policy.
Another disadvantage is that you may have to pay taxes on the growth of your cash value. This is because the IRS views it as income.
Finally, if you decide to cancel your policy, you may not get all of your money back. This is because insurance companies typically charge a surrender fee when you cancel a policy with cash value.
So, Which One Should You Use?
It really depends on your personal circumstances and what you want to achieve. If you’re looking for a long-term investment, then cash value life insurance might be the better option. However, if you’re simply looking for protection for your loved ones in case of your death, then face amount life insurance is probably the way to go.
Of course, there are other factors to consider as well, such as the fees associated with each type of policy. Cash value life insurance policies often have higher premiums, but they also offer the potential for greater returns. Face amount policies tend to have lower premiums, but they don’t offer the same investment potential.
Ultimately, it’s up to you to decide which type of policy is right for you. Consider your needs and objectives, and then compare the different options to see which one makes the most sense for you. Whichever way you go, make sure you do your research and shop around before buying a policy. And remember, life insurance is an important part of any financial plan, so don’t neglect it!
What Are Some Alternatives to Using a Life Insurance Face Amount or a Cash Value?
Some alternatives to using a life insurance face amount or a cash value are to use a policy loan, withdraw money from the policy, or surrender the policy.
Policy loans and withdrawals will both reduce the death benefit of your life insurance policy, so it is important to consider these options carefully. If you decide to surrender your life insurance policy, you will receive the cash value of the policy minus any surrender fees that may apply.
When it comes to personal finance, there is no one-size-fits-all solution. It is important to carefully consider all of your options and make the decision that is best for you and your family.
What Are Some Tips For Using a Life Insurance Face Amount?
When you’re looking at life insurance face amount options, there are a few things you should keep in mind. First, make sure that the face value is high enough to cover your needs. You don’t want to be underinsured and have your family left struggling financially if something happens to you.
Second, remember that the face value is only paid out if you die during the policy term. If you cancel your policy or it expires, your beneficiaries won’t receive anything. So make sure you choose a policy with a term that fits your needs.
Third, be aware of the costs associated with life insurance face amount policies. They can be more expensive than other types of life insurance, so make sure you compare prices before you buy.
Finally, remember that the face value is only paid out if you die during the policy term. If you cancel your policy or it expires, your beneficiaries won’t receive anything. So make sure you choose a policy with a term that fits your needs.
What Are Some Tips For Using a Cash Value?
There are a few things to keep in mind when using your cash value.
First, remember that the cash value is there as an emergency fund. Don’t tap into it unless you absolutely need to.
Second, try to contribute to it regularly. The more you contribute, the faster it will grow. Finally, don’t be afraid to invest in it. The cash value can be a great way to grow your wealth over time.