What is Face Amount?
The face amount, also known as the policy’s “death benefit” or “coverage amount,” refers to the specific dollar amount that will be paid to the beneficiary when the insured person passes away. This amount is typically specified at the time the policy is purchased and remains unchanged throughout the policy’s term, although some policies may allow for increases or decreases in the face amount under certain conditions.
In the context of term life insurance, the face amount is a fixed value chosen by the policyholder based on their financial needs and is often intended to cover expenses such as mortgage payments, education costs, or income replacement. For example, a term life insurance policy with a $100,000 face amount will pay out that exact amount upon the insured’s death, provided the policy remains active.
With permanent life insurance, such as whole life or universal life insurance, the face amount is also specified at policy issuance. However, some permanent life insurance policies may accrue a cash value component, which could alter the overall benefit amount received.
The face amount is a critical factor in determining the policy’s premium cost; generally, the higher the face amount, the higher the monthly or annual premium. It’s important for policyholders to choose a face amount that aligns with their financial goals and family’s future needs.