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Updated: April 12, 2024 at 9:38 am
Have you heard of life insurance with “living benefits”?
Yes, John. I looked up living benefits of life insurance and got confused. Also, I spoke to another agent who really couldn’t describe them.
I understand. I read those same articles. They unfortunately lead readers astray. You end up not really knowing what living benefits are and how they work.
Updated: April 12, 2024 at 9:38 am
Many people get confused about the face amount of a life insurance policy.
The reason is that there are other names for the face amount. For example, some people think the cash surrender value is the face amount of a life insurance policy, but it’s not.
Coverage amount is another name for the face amount.
Moreover, the face amount really depends on the type of life insurance you have.
It’s important to understand the face amount of a life insurance policy, so you know what your beneficiaries will receive upon your death.
In this article, we are going to discuss:
Let’s jump in and discuss and answer the question, “What is the Face Amount of a Life Insurance Policy?”
The face amount of a life insurance policy is the amount of money a life insurance carrier pays to your beneficiaries when you, as the insured, pass away.
It is that simple. For example, if your policy says you have a $250,000 death benefit, then that’s the amount your beneficiaries receive upon your death.
The face amount of a life insurance policy is the amount of money a life insurance carrier pays to your beneficiaries when you, as the insured, pass away.
Sometimes, the face amount is known as the:
While these all mean, generally, the same thing, sometimes they can be different.
What, John? Sounds like you are talking out of both sides of your mouth!
Sorry. Let’s go deeper. The face value of a life insurance policy really depends on the type of life insurance you have. Let’s discuss more.
A policy’s death benefit or face amount really depends on the type of life insurance you have. The three main types of life insurance include:
When you apply for life insurance, you apply for the face amount. Upon your death, your beneficiaries receive the death benefit, which may or may not be the face amount.
With term life policies, the face amount is the death benefit stated in the contract. See this example:
So, if you have a term life insurance policy with a $1,000,000 death benefit, that is the face amount. If you pass away within the term (let’s say 20 years), then your beneficiary receives $1,000,000.
However, as with all term policies, if you pass away outside the term after your policy expires, your beneficiaries receive $0. Your death benefit is $0.
So, with term insurance, the face amount is the amount that is stated on the contract.
The face amount is different when it comes to permanent life insurance policies. We discuss those next.
Whole life insurance is a type of permanent life insurance. Permanent life insurance is designed to last your entire life and pay the death benefit upon your death.
The face amount on whole life policies differs from that of term life policies.
Whole life insurance policies contain guaranteed and non-guaranteed elements in their contract. They guarantee the:
Non-guaranteed elements exist. These include:
A non-guaranteed death benefit can exist with whole life insurance. The reason is due to the structure of whole life insurance and if the policy offers dividends.
When you make premium payments to a whole life insurance policy, part of that premium goes to the cash value. Without getting too detailed, as the cash value account grows, the carrier’s “net amount at risk” declines.
However, when the whole life insurance policy offers dividends (i.e. participating whole life insurance) your death benefit potentially increases.
See the comparison below. This is a $100,000 face amount for a 30-year-old man. His guaranteed premium is $82.54 per month (about $990 annually) and a guaranteed death benefit of $100,000. Through the use of dividends and using the dividends to buy more life insurance on himself (also known as paid-up additions) he increases the death benefit to potentially $109,984 at age 57 (for example).
Let’s say he passes away at age 57. His beneficiary could potentially receive the $109,984 with a guaranteed face amount of $100,000.
The face amount of a universal life policy is different. It depends on the type of death benefit selected. (Note: I am not going to get into the details on universal life policies. Universal life is structured much differently than whole life. However, if you have any questions, please contact me.)
Most carriers that offer universal life offer 2 types of death benefit:
(1) level death benefit
(2) increasing death benefit
The level death benefit is just how it sounds. Your death benefit remains the same throughout the life of the policy, provided your premium payments are enough to maintain the cost of insurance and other fees. The level death benefit is similar to that of the guaranteed death benefit / face amount on a whole life insurance policy (except, technically, the universal life death benefit isn’t guaranteed – again, a little outside the scope of this article).
The increasing death benefit is different. In this case, the policy’s cash value is added to the face amount (as you apply for on your life insurance application) for a total death benefit. Upon your death, your beneficiaries will receive the policy’s cash value + the face amount (equals the death benefit) – any policy loans and/or withdrawals.
So, for example, let’s say Joe and Tim each have universal life insurance policies of $100,000. Joe has a level benefit and Tim has an increasing death benefit.
At age 50, they both unexpectedly pass away. Joe and Tim each have $50,000 of cash value at the time of their death. Let’s assume no outstanding loans or withdrawals.
Joe’s beneficiaries receive $100,000 (because he has a level death benefit) and Tim’s beneficiaries receive $150,000 (because he has an increasing death benefit).
We just discussed the face amounts for term life insurance, whole life insurance, and universal life insurance. The type of death benefit / face amount available to your beneficiaries really depends on the type of policy you have.
I receive many questions about cash value. As I described earlier, cash value is a key component to the makeup of permanent policies (whole life and universal life). Many people think cash value is the face amount of a life insurance policy.
It is not.
Cash value is simply the build-up or growth of money that builds inside a permanent life insurance policy. Generally speaking, as you pay your premiums, your cash value grows over time. Carriers typically offer an attractive interest rate on the cash value. You technically can’t lose money on the cash value (except to pay for any policy fees or surrender costs). It is a safe way to grow your money. Think of it as a savings account (but it is not).
The policy’s cash value will always be less than the policy’s face value (until, technically, when the insured reaches age 121, then the life insurance “endows”). Look at our whole life excerpt again.
In this example, the guaranteed cash value is $31,310 and the guaranteed death benefit is $100,000. The plan offers a potential cash value of $36,229 with a non-guaranteed death benefit of $109,984.
If at age 57, the policy owner decides to cancel the policy, he will receive the cash value of potentially $36,229 in the policy.
We touched on this in our section about the face amount of a universal life insurance policy. A person who owns a universal life insurance policy with an increasing death benefit has both the face amount and a death benefit.
The face amount is the amount of life insurance the policy owner applied for at the time of application (and, assuming he was approved for said amount).
The death benefit is the cash value in the universal life policy + the face amount (A +B, see below).
Upon a policyholder’s death, assuming no loans or withdrawals, the policyholder’s beneficiary will receive the death benefit (cash value + face amount).
Most people just blindly pull a number out of the air and say, “I need $250,000 of life insurance.”
Obviously, that is the wrong tactic.
For example, if you make $100,000 and are the breadwinner of your family, $250,000 won’t go very far upon your death, depending on your situation.
If you have children, a spouse who doesn’t work, and a mortgage, that $250,000 is gone in a year’s time.
Some agents use the “10 X” rule of thumb. They say that whatever you make, you multiply that number by 10. That is then the right amount of coverage for you.
So, for example, if you make $100,000, then you should have $1,000,000 on yourself.
That is better than the “pulling numbers out of the air approach”, but still isn’t specific enough to meet your family’s needs upon your death.
Some carriers have these life insurance calculators on their websites. Honestly, they just muddle and complicate things with how they present their calculators.
It doesn’t have to be complicated. Look at this life insurance needs worksheet we created. It is straightforward and self-explanatory.
The worksheet is already pre-filled with some “dummy” numbers. Enter your own situation and play around with the death benefit to see what makes sense.
Nevertheless, the attachment helps you determine the right face amount for your particular needs and situation.
Some people think they can apply for any amount of life insurance. However, that is not the case.
Carriers limit the face value of life insurance in one way or another.
For example, a 50-year-old man on SSDI won’t ever get approved for $1,000,000 in term life insurance. Why?
He is on SSDI, which means he can’t work. Being gainfully employed and working is an important factor to many life insurance companies.
He could, though, get $50,000 and maybe up to $100,000 if his SSDI is due to an injury.
That brings us to our first point. Many life insurance companies limit the face amount based on an income or salary factor. This factor is based on the applicant’s age, type of insurance, and salary/income.
Look at the excerpt below on this carrier’s limit. So, for example, a 30-year-old woman making $100,000 can apply up to $4,000,000 of life insurance.
If she already has $2,000,000 in place with another company, she can only apply for an additional $2,000,000 (for $4,000,000 in total).
However, salary isn’t the only factor. Companies also limit the life insurance death benefit through underwriting.
They look at your health, lifestyle, credit history, and other situations they deem material to your risk (i.e. risk of dying too soon). If one of these factors is too adverse, carriers may limit the face amount or decline your application altogether.
Contact us if you have any questions. We are one of the few brokers that can get anyone life insurance. It may not be the face amount you are looking for, but we usually can get people some amount of life insurance in nearly all cases.
We answer frequently asked questions about the face amount of life insurance.
The face amount of a life insurance policy is the dollar amount of money that will be paid out to a beneficiary upon your death. This amount differs based on the type of life insurance you have. Term life insurance provides the same face amount as the death benefit. For example, if you purchased a policy with a face amount of $250,000 and pass away during the term period, your beneficiaries receive a $250,000 death benefit.
The face amount or death benefit amount is different with permanent policies. With whole life, the death benefit amount is the face value/face amount you applied for + any paid-up insurance – any outstanding loans. For universal life with an increasing death benefit, the death benefit contains the face amount applied for + any cash value – any loans or withdrawals.
Several factors are involved when determining the face amount of life insurance. These factors include:
Additionally, underwriting comes into play. Ultimately, your face amount depends on:
These all affect your life insurance premium which may affect the face amount. For example, let’s say you applied for $500,000, 30-year term for $75 per month. However, because of past health issues, the underwriter determined your rate should be $150 per month for $500,000. You’d like to stick with a budget of $75 per month, so you ask the carrier to modify the face amount to $250,000.
Not necessarily. Some types of life insurance allow you to adjust the face amount over time. Additionally, some term life insurance policies exist where the face amount decreases over time (to follow the declining balance on a loan or mortgage). However, most face amounts remain fixed over time. This is particularly true with term life insurance.
With permanent policies, the death benefit can adjust with increases in cash value or decreases with loans.
It can. Generally speaking, the older you are, the higher your monthly premiums (all things being equal). If you are on a budget, then your budget may limit the amount of life insurance.
For example, you are 55 and want $250,000 of term life which costs $100 per month. But, you can only afford $50 per month. Therefore, you apply for a lower face amount.
As we mentioned earlier, many carriers limit the face amount based on your age and the income you make.
The face amount is, generally speaking, the amount of money your beneficiaries receive upon your death. Cash value applies with permanent life insurance policies. The cash value really starts at $0 and grows over time as you make premium payments and as the cash value earns a return. Even when your cash value is $0, you still have a death benefit.
For example, Joe applies for $100,000 universal life insurance. He makes the first premium payment. His cash value is $0 right now, but if he passes away tomorrow, his beneficiary will receive a $100,000 death benefit.
Health conditions can affect the face amount. If you have a moderate to severe health condition, carriers may limit the death benefit to limit their risk. Alternatively, they may keep the face amount the same, but they increase the premiums through table ratings to offset their risk.
If the face amount is insufficient for your beneficiaries upon your death, then you need to purchase additional life insurance. You don’t want to wait on this. If you develop a serious health condition or unexpectedly pass away before the additional insurance, then your beneficiaries might face a tough financial situation.
You should review your life insurance situation at least every few years and make sure your current life insurance policies fulfill your beneficiary needs. The following situations likely lead to a change in life insurance needs:
One advantage of life insurance is the flexibility of its use. The purpose of the life insurance affects the face amount. For example, if you want life insurance to pay for your funeral, you can apply for burial insurance. Burial insurance is a whole life policy with a low face amount, like $30,000. Upon your death, your beneficiary can use this money to pay for your funeral. Moreover, some carriers allow you to assign part of the death benefit, or all of it, to a funeral home of your choice.
As you can see, needing life insurance to pay for your funeral is different than needing it to pay for your unexpected death. This is where a term life policy shines. It is common to see life insurance face amounts of $1,000,000; $2,000,000; or even more if the applicant has a young family, a significant mortgage, and/or the main provider of the family.
Likewise, it is common for banks or lenders to require life insurance on a borrower. In this case, if the borrower passes away during the loan repayment period, the lender receives the death benefit money that makes them whole.
I hope you learned more about the face amount of a life insurance policy. As you read, the face amount is much more involved than at first glance. We answered what the face amount is as well as contrasted the face amount and death benefit for permanent insurance policies. We also discussed what is involved in determining the face amount and how carriers can limit the face amount.
Do you have any questions or need assistance? Do you feel like you need more life insurance, but don’t know where to start?
Contact us or use the form below. I am happy to assist and answer any questions you have.
We have helped many people obtain life insurance, placing their needs before our own. Isn’t that how a trusted relationship is supposed to be? We have your best interests first. We also don’t contact you 1,000 times per day. If you ever feel like you don’t need our help, just tell us. You can always reach back out to us if your needs change.
Are you interested in learning more about the information in this article? Please fill out the form below, and we will email you additional information or give you a call. We always work in your best interest. By entering your information, you are providing your express consent that My Family Life Insurance may contact you via e-mails, SMS, phone calls, or prerecorded messages at any phone number(s) that you provide, even if the number is a wireless number or on any federal or state do-not-call list. Additionally, you understand that calls may be placed using automated technology, and that consent is not a requirement for purchase. Your information will NOT be sold and will remain private. However, you may opt out at any time. We respect your privacy first and foremost. By contacting us, you agree to receive text messages from our number (800) 645-9841. If you no longer wish to receive text messages, you may opt out at any time by replying "STOP".
Updated: April 12, 2024 at 9:38 am
Did you know guaranteed issue term life insurance exists?
No, John. I’ve only heard about guaranteed issue whole life insurance.
Right. This is guaranteed issue term life.
Same thing. No health questions (however, one does have some general questions to answer).
No MIB lookup or underwriting. Carriers don’t ask any health questions.
You fill out the online application. Then, pay via credit card or with a debit card.
You then have life insurance.
There are some differences. Notably, this is term life insurance.
We work with 3 guaranteed issue term life insurance plans.
John, tell me more.
We’ll go through all the details.
Here’s what we will discuss:
Let’s jump in and discuss how the guaranteed issue term life insurance works.
I know what you are thinking.
John, how am I able to obtain guaranteed issue term life insurance? I only heard of guaranteed issue whole life insurance.
Here’s how you can obtain term life insurance with no health questions or underwriting.
These guaranteed issue term life insurance options are through associations. In order to obtain the term life insurance, you have to join the association.
Note that the guaranteed issue term life insurance depends on where you live. Not all associations are available in all states.
We will get into the associations in the next section. However, you will need to agree to the terms of the association membership if you want the life insurance. In other words, you’ll have to pay a membership fee as well as the premium for the life insurance itself.
That’s not so bad because nearly all of the associations offer value-added benefits along with the life insurance plan.
Additionally, like guaranteed issue whole life, some term plans have waiting periods. In other words, the life insurance doesn’t take effect until the waiting period elapses. For example, if a plan has a 2-year waiting period, the life insurance isn’t in effect until the 2-year period finishes.
In the meantime, you have access to other benefits offered by the association. Some plans will pay a benefit if you pass away from an accident during the waiting period as well.
Finally, the term life insurance operates on a group/employer foundation. It is like the term life insurance one can get through an employer (i.e. your job). Like group employer term life insurance, the association or the life insurance carrier can terminate the plan anytime (please understand: no premium refunds if this happens).
Generally speaking, everyone is accepted. One association we work with does not require a social security number.
Let’s discuss the 3 guaranteed issue term life insurance options.
Here are the 3 associations and their corresponding guaranteed issue term life insurance options.
One association we work with is the Elevate to Wellness Association.
As you can read on their website, their mission is to promote health and wellness options for employees at small-to-mid-sized companies.
You are probably aware that small business owners and employees get “priced out” of competitive insurance and financial products.
The Elevate to Wellness Association offers various financial and insurance products to employees at discounted rates (similar to big corporations). These products include:
They offer many robust insurance plans.
In terms of the life insurance option, you can purchase up to $50,000 at guaranteed issue. It is term to age 85. However, in order to obtain the life insurance (or any of these plans), you must be gainfully employed. If you are not working because of illness or injury, then you can’t join.
We require some type of current pay stub to show proof of your gainful employment. You must also work 20 or more hours per week.
Premiums are pretty cheap. We helped a 24-year-old woman obtain $50,000 for $10 per month, including the membership fee.
How to enroll? You have to contact us. The only plans the association offers through its website are their lifestyle plans which include $7,000 of term life insurance only. If you are interested, we can get you set up.
The next association is the Emergency Management Alliance.
They offer up to $20,000 in term life insurance for a member for a flat $59.95 per month for 1 member.
Even better, they offer family plans for $89.95 per month which includes $20,000 on the enrolling member, $10,000 on a spouse, and $5,000 each on children.
Eligible ages are 18 to 74.
It is term to age 100, so it lasts your lifetime.
However, the association requires answers to 3 pre-qualifying questions. See the snippet. This is like “almost” guaranteed issue life insurance.
So, the applicants can’t be terminally ill or confined to a nursing home, etc. Moreover, the enrolling member must work in gainful employment.
But, John. I am 70 years old. I am retired, but I’m able-bodied and can work if I need to.
If you are retired, that is OK, as long as you are able-bodied and can work or have the ability to work if you want to. You can then enroll in the life insurance. The association doesn’t accept individuals who unfortunately are not able-bodied (physically and mentally) to work in gainful employment.
That brings us to this point, this term life plan is a great option for able-bodied seniors looking for life insurance.
As specified in the brochure, the death benefit does reduce at age 70 to $10,000. (More on why in a minute.)
However, compare these options. A $10,000 policy with the EMA costs $59.95 per month for a 71-year-old man. The same 71 year-old-man can buy a $10,000 guaranteed issue whole life insurance policy for about $108 per month.
There is a 1 year waiting period on the life insurance.
If you’d like to apply, you can do so here: calstarbenefits.com/index.cfm?id=713217
Contact us if you have any questions.
The final association is the United Service Association for Health Care (USA+).
They were established in 1983 and have provided a member term life insurance since 1987.
They offer 3 term life insurance options (all term to age 85):
A 1-year waiting period exists on the life insurance. After 1 year, the life insurance is in force.
Unlike the other 2 associations, this is a true guaranteed issue term life insurance plan. No health questions or anything.
Moreover, they will take people who are under a qualified and properly constructed POA or guardianship (i.e. it has to give you the right or authority to purchase life insurance). You just have to submit the POA or guardianship along with the application.
A brochure is available here.
Additional, no-cost benefits include:
In my opinion, the offerings through the USA+ Association are excellent. Rates are affordable. Moreover, most people could use a vision plan. Additionally, everyone could use an identity theft plan. Again, these are part of the membership.
If you’d like to apply, you can access the application. Then return it to us for our signature and processing.
The premium rates for the term life insurance in the Elevate to Wellness Association depend on your age.
Conversely, the premium rates for the term life insurance plans through the EMA and USA+ are fixed no matter your age. The guaranteed issue term rates for the EMA and USA+ are $59.95 and $65 per month, respectively.
One thing: these associations all have a one-time, non-refundable administrative fee of $20 to $25.
The guaranteed issue term life insurance plans are not available in every state.
The best thing to do is contact us. We can search the 3 associations and see if plans are available.
If not, we typically have other options available for you.
However, one of the great aspects of these 3 associations is that their term life insurance plans are available to New York state residents. While outside the scope of this article, not many carriers exist in New York due to state regulations. These life insurance options are available in New York.
Who is the guaranteed issue term life insurance good for?
Anyone, really, but here is a list of people who might benefit from this plan.
These include, but are not limited to:
The list goes on.
People who are in tough situations due to health conditions or lifestyle situations should consider this guaranteed issue term life insurance.
Applying for the guaranteed issue term life insurance is easy.
You will want to contact us if you want to apply for the term life insurance through the Elevate to Wellness Association.
The other Associations accept a self-enrollment process or the PDF application.
John, the $50,000 is a good step, but I need more.
If you need more, contact us.
We’ve helped many people secure the life insurance they need.
We’ve even helped people who were declined before, sometimes with a traditional policy (i.e. an immediate benefit – no waiting period). Feel free to search at plans below:
If your situation dictates a guaranteed issue whole life insurance plan, we have many options.
We have a plan that is available for people under the age of 40. Also, we have many affordable options, including one from a Catholic Fraternal Benefits Society.
We need to know more about you so we can make an educated recommendation.
We answer commonly asked questions about the guaranteed issue term life insurance products through associations.
Yes. The term life products are legitimate products through associations. As long as you meet the requirements, they are guaranteed issue. (The term life plan through the EMA does have 3 questions to which a majority of people can say “no”. If not, we have the plan through USA+.)
Yes. Term life insurance plans through associations operate similarly to employer/group term life insurance. In those cases, carriers or the company can terminate the plan. The same with associations and the corresponding term life carrier.
However, no indication exists that either the association or the carrier will terminate the association’s term life insurance plans.
You actually don’t receive a policy. The association is the policyholder, and they will issue you a certificate upon joining. The certificate contains all the important details of your coverage, beneficiary, death benefit amount, etc.
Most certificates arrive in the mail within 15 business days of the effective date of your membership.
As we explain in our guaranteed issue life insurance guide, the reason carriers do this is to avoid quick payouts of the death benefit. There’s no underwriting, so carriers must mitigate their risk somehow (in order for the premiums to be reasonable and their plan solvent and competitive).
The life insurance carriers who underwrite the association term plans are all A-rated carriers. You can read about them in their respective brochures or contact us.
This is a common characteristic of group term life insurance. The death benefit stays consistent until sometime after normal working age, whereupon it decreases.
Carriers do this to keep costs low for everyone. Obviously, people have a higher probability of dying when they are older versus when they are younger. Carriers know this. They also know that this is term life insurance. Term life insurance rarely goes beyond age 80, although these 3 associations allow it (with a reduction in the death benefit).
We at My Family Life Insurance are happy to help you with guaranteed issue term life insurance products.
Please let us know if you have any questions about it. You can contact us or use the form below.
If you need more insurance, let us know. We can help.
We always work in your best interest, and there’s no risk in contacting us. If we can’t help you, we’ll part as friends and point you in the right direction as best we can. You can always contact us later if your situation changes.
Additionally, remember, that we work with many carriers and can likely find you more coverage or better coverage.
Are you interested in learning more about the information in this article? Please fill out the form below, and we will email you additional information or give you a call. We always work in your best interest. By entering your information, you are providing your express consent that My Family Life Insurance may contact you via e-mails, SMS, phone calls, or prerecorded messages at any phone number(s) that you provide, even if the number is a wireless number or on any federal or state do-not-call list. Additionally, you understand that calls may be placed using automated technology, and that consent is not a requirement for purchase. Your information will NOT be sold and will remain private. However, you may opt out at any time. We respect your privacy first and foremost. By contacting us, you agree to receive text messages from our number (800) 645-9841. If you no longer wish to receive text messages, you may opt out at any time by replying "STOP".
Updated: April 12, 2024 at 9:38 am
Many life insurance companies offer life insurance riders for policyholders. Life insurance riders allow policyholders to customize their policy to their needs and wants. Like a knot, they attach to your base life insurance policy.
Of course, the more you customize, the more your policy costs. Carriers charge an additional cost for some of these riders.
What?
Yes, many riders come with an extra cost. Sometimes, the cost is worth it. Other times, it is not.
Continue reading The Best Life Insurance Riders And Ones You Don’t Need
Updated: April 12, 2024 at 9:38 am
Have you heard about limited pay life insurance and wondered what it is about?
Yes, John. Another agent presented it to me, and it made no sense.
Well, sometimes the life insurance industry vernacular is wacky. In this article, we will discuss limited pay life insurance and if it is right for you.