Face Amount (Face of Policy)
Definition
The face amount, often referred to as the face value or coverage amount, is the total sum of money provided by an insurance policy, payable upon the death of the insured or at the policy’s maturity. This amount is specified in the insurance contract and is a key factor in determining the premium costs and the financial protection provided to beneficiaries.
Examples
- Term Life Insurance Policy: A term life insurance policy has a face amount of $500,000. If the insured person passes away during the term, the beneficiaries will receive $500,000.
- Whole Life Insurance Policy: A whole life insurance policy may have a face amount of $250,000, which is payable upon the death of the insured whenever that occurs, provided premiums are paid as required.
Frequently Asked Questions (FAQs)
Q: How is the face amount different from the cash value of a life insurance policy?
A: The face amount is the death benefit the beneficiaries receive when the insured dies. The cash value, on the other hand, is the savings component available in some permanent life insurance policies that accumulate value over time.
Q: Can the face amount change over time?
A: Typically, the face amount of a term life insurance policy remains constant, while some permanent life insurance policies may offer options that allow the face amount to increase or decrease based on specific conditions or at the policyholder’s request.
Q: How does the face amount affect the premium?
A: Generally, a higher face amount will result in higher insurance premiums because the insurer is taking on more risk by guaranteeing a larger payout.
Related Terms
- Death Benefit: The amount paid out to beneficiaries upon the death of the insured, usually equivalent to the face amount of the policy.
- Cash Value: The portion of premiums paid into a permanent life insurance policy that accumulates as savings.
- Premium: The periodic payment made to keep an insurance policy in force.
- Term Insurance: A type of life insurance that provides coverage for a specified period with no savings element.
- Whole Life Insurance: A type of permanent life insurance that provides coverage for the insured’s entire lifetime and includes a savings component.
Online References
Suggested Books for Further Studies
- The Life Insurance Handbook by Louis S. Shuntich
- Insurance for Dummies by Jack Hungelmann
- Life Insurance: A Consumer’s Handbook by Joseph M. Belth
Fundamentals of Face Amount: Insurance Basics Quiz
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