Face Value

• Face value is the initial value of the policy. This is the basic amount the beneficiary would receive when the insured dies.
  
  

Cash Value

• Cash value is the money the life policy earns through investments by the insurer. Permanent life insurance policies, such as whole life and universal life, have cash-value accounts, while term life insurance does not.
  
  

Benefits of Cash Value

• The money that is in the cash-value account grows, tax deferred, which means there are no tax implications on the funds until they are withdrawn. Also, if a policy owner decides to access the money in the account by taking out a 'policy loan', the money is received tax free and doesn't have to be repaid.
  
  

How Cash Value and Face Value Work Together

• Beneficiaries can receive a higher payout when the insured passes away if the policy had additional riders attached and/or if there are funds in the cash-value account. However, even though the policy loan doesn't have to be paid back, if it is outstanding at the time of death, the face value will be decreased by the amount.
  
  

Universal Life

• Whole Life policies, and one of two options of universal life policies--Option B--pay the cash value in addition to the face value upon death. A second option with universal policies--Option A--does not. In fact, the cash value is used to pay the final death benefit. The more money in the cash-value account, the less money the insurance company has to pay. For example, under option A, a $50,000 universal life policy with $20,000 available in the cash-value account will pay out $50,000 to the beneficiary--$20,000 from the cash-value account and $30,000 from the insurer. Under option B with the same policy, the $20,000 in cash value would be added to the $50,000 face-value amount to create a $70,000 death benefit. People choose Option A because it keeps the premiums lower than Option B, while providing a level death benefit.