Legal Definitions - fully paid face-amount certificate

A fully paid face-amount certificate is an investment where the investor has completed all required payments to the issuer. In return, the issuer promises to pay the investor a specific, predetermined sum, known as the face amount, at a future date, often including accrued interest.

A fully paid face-amount certificate is a type of investment contract where an investor has completed all required payments to the issuer. In exchange for these payments, the issuer promises to pay the investor a predetermined sum, known as the "face amount," at a specified future date. This face amount typically includes the original principal invested plus a guaranteed return.

The "fully paid" status signifies that the investor has fulfilled all their financial obligations under the certificate, whether through a single lump-sum payment or a series of installment payments. Once fully paid, the investor has no further contributions to make and is simply awaiting the maturity of the investment to receive the promised sum.

• Example 1 (Retirement Savings):

  Scenario: Sarah, nearing retirement, decides to invest a portion of her savings in a financial product that offers a guaranteed return. She purchases a face-amount certificate by making a single, substantial lump-sum payment of $100,000. The certificate promises to pay her $150,000 in 10 years.

  Explanation: Because Sarah made a single, complete payment for the entire principal amount upfront, her investment immediately becomes a fully paid face-amount certificate. She has no further payment obligations and will receive the promised $150,000 at the end of the 10-year term.

• Example 2 (College Fund):

  Scenario: Mark and Lisa started investing for their daughter's college education when she was born. They purchased a face-amount certificate that required monthly payments of $200 for 18 years, promising a face amount of $60,000 when their daughter turns 18. Now, their daughter is 18, and they have just made their final $200 payment.

  Explanation: After making their last scheduled monthly payment, Mark and Lisa's investment transitions into a fully paid face-amount certificate. All their payment obligations have been met, and they are now entitled to receive the $60,000 face amount from the issuer to help fund their daughter's college expenses.

• Example 3 (Corporate Investment):

  Scenario: A small manufacturing company, "InnovateTech," has accumulated surplus cash from a successful quarter. To ensure stable growth, the company's CFO decides to invest $50,000 in a face-amount certificate that guarantees a fixed return over five years, maturing at $65,000. InnovateTech makes the entire $50,000 payment at the time of purchase.

  Explanation: Since InnovateTech made a one-time, complete payment for the certificate, it is considered a fully paid face-amount certificate from the outset. The company has no further financial contributions to make and will receive the $65,000 face amount when the certificate matures in five years.