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Legal Definitions - face amount
Definition of face amount
The face amount refers to the principal sum explicitly stated on a financial document or instrument. It represents the initial, nominal value written on the document itself, without accounting for any additional earnings, interest, fees, or deductions that might accumulate or be applied over time. It is the core, unadjusted value that the document purports to represent.
Imagine Sarah purchases a life insurance policy. The policy document clearly states that upon her death, her beneficiaries will receive $500,000. This $500,000 is the face amount of the policy. Even if the policy later accumulates cash value, pays dividends, or has a loan taken against it, the original, stated $500,000 remains its face amount, representing the primary coverage value.
Consider a company that issues a corporate bond. The bond certificate specifies a principal value of $1,000 that will be repaid to the bondholder at maturity. This $1,000 is the face amount of the bond. It is distinct from the interest payments the bondholder receives periodically or any premium or discount at which the bond might trade in the market; it's simply the stated repayment value.
Suppose a small business owner signs a promissory note to borrow $25,000 from a lender. The note explicitly states that the principal amount of the loan is $25,000. This $25,000 is the face amount of the promissory note. It represents the initial sum borrowed, separate from any interest charges, late fees, or other costs that will be added to the total repayment obligation over the loan's term.
Simple Definition
The "face amount" is the literal value or sum explicitly stated on a financial instrument. In the context of life insurance, it represents the principal amount of money payable to beneficiaries upon the insured's death or when the policy matures. This figure excludes any additional benefits, such as accrued interest or supplemental insurance riders.