CARD T099
Death Benefit
The amount payable for a covered death under a life insurance policy. For example, $200,000 paid to a beneficiary after a covered death.
How it works
The death benefit is the amount payable under the policy for a covered death. It can differ from the basic face amount because of riders, paid-up additions, loans, or other contractual adjustments. Ordinary death proceeds paid to a beneficiary are generally excluded from federal gross income, but interest paid on proceeds is generally taxable and exceptions to the exclusion exist. [1] [6]
A $200,000 base benefit plus a qualifying $100,000 accidental-death rider gives $300,000 before other adjustments. The rider must actually apply to that death.
Death benefit is what the contract pays for the covered death; face amount is the stated basic coverage.
CARD T100
Face Amount
The stated basic life insurance amount; adjustments can make the actual death payment different. For example, a policy states $200,000, but an unpaid policy loan may reduce the payout.
How it works
The face amount is the basic stated amount of life coverage. It is a starting point, not necessarily the final check. Loans, riders, unpaid premiums permitted to be deducted, and policy benefit formulas can change the net payment. Cash value is not automatically added to it. [1]
A policy has a $150,000 basic death benefit and $12,000 total outstanding loan debt. With no other adjustments, the net proceeds are $138,000.
Face amount, cash value, and net death proceeds are three different figures.
CARD T101
Cash Value
Money that builds up within certain permanent life policies and may be accessed while the insured is alive through a permitted loan, withdrawal, or surrender. It is different from the death benefit.
How it works
Cash value is a living policy value associated with certain permanent policies. Its growth may be guaranteed, interest-sensitive, or investment-linked depending on the product. Access can involve a loan, withdrawal, or surrender, each with different effects. Ordinary term generally has no cash value. Growth is generally tax-deferred, not a promise that every distribution is tax-free. [1] [7] [12]
An owner may borrow against available value while keeping coverage, or surrender the policy for its net surrender value. Those transactions do not have the same consequences.
Cash value is not necessarily the amount available after surrender charges and debt.
CARD T102
Cash Surrender Value
The net amount available when a cash-value policy is surrendered, after applicable deductions. For example, $10,000 in cash value minus a $500 surrender charge leaves $9,500, assuming no other deductions.
How it works
Cash surrender value is the net value paid when the owner ends the policy through surrender. Applicable surrender charges and outstanding loan debt can reduce the amount. Full surrender ordinarily ends the life coverage. For federal income tax, surrender proceeds above the policy’s tax basis are generally taxable; loan-related amounts can complicate the calculation. [1] [7]
Cash value of $20,000 minus a $1,000 surrender charge and $3,000 total loan debt leaves $16,000 paid, assuming no other adjustments. The tax calculation is a separate step.
Surrender value is a net living benefit; it is not the face amount or a loan that leaves the policy intact.
APPLY THE TERMS
Practice questions
Select an answer, then check it to see why each option is right or wrong.
T099 · Death Benefit
0 of 3 answered
T100 · Face Amount
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T101 · Cash Value
0 of 3 answered
T102 · Cash Surrender Value
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Sources & further reading
Original explanations and practice scenarios informed by the following regulatory, legal, and product resources. State examples are not presented as nationwide deadlines or requirements.