The face amount refers to the total value a policyholder receives upon maturity of a policy or a holder of a bond receives upon its maturity. It signifies the nominal value of an insurance policy or a bond and serves as the base amount payment as indicated on the policy or bond.
Related Questions
1. What is the difference between Face Amount and Cash Value?
While the face amount is the sum that a beneficiary receives upon the policyholder’s death or bond’s maturity, the cash value refers to the amount of money which the policyholder can access during the policy’s life. Cash value accumulates over time and can be used for loan collateral or can be surrendered for a cash payout.
2. Can a policy’s face amount change?
Want More Financial Tips?
Yes, depending on the kind of insurance or policy one holds. Certain insurance types such as Universal life insurance come with flexible premiums that can change the face amount according to the policyholder’s changing needs.
3. Is the face amount taxable?
Typically, the face amount received from an insurance policy due to the death of the policyholder is not subject to income tax. However, if the face amount is part of the estate, it may be subject to estate taxation.
4. What occurs if the bondholder dies before the maturity of the bond?
If a bondholder passes away before bond’s maturity, the bond becomes part of the bondholder’s estate. It can then be transferred to a beneficiary or can be used to settle any outstanding debts.
5. How is the face amount determined?
The face amount is usually decided upon when the policy or bond is first taken out. It’s determined based on several factors including the policyholder’s financial obligations, needs, and income. For insurance, it often includes aspects like income replacement, debts, and future needs such as education expenses or retirement funding.