When you take out a life insurance policy, you will select a face amount. Understanding this term will allow you to know how much insurance coverage your policy provides.
The insurance face amount is the sum that a life insurance policy will pay upon the occurrence of a qualifying event. The name comes from the fact that this amount is typically shown on the "face" or top sheet of the policy.
Most commonly, death of the policyholder is the "qualifying event" that triggers payment of the face amount. In the case of a whole life policy, the maturity date (typically when the insured person reaches age 100) can also be a qualifying event.
Some life insurance policies pay all or part of the face amount if the insured person suffers total disability.
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Dividends paid to policyholders are not included in the policy's face amount.
Variable Face Amount
The face value of indexed life insurance policies varies with the performance of the financial index the policy follows. Also, some life insurance policies provide a face amount that decreases over time (usually to cover a mortgage or installment loan) in exchange for a lower policy premium.