West Virginia State Life Insurance Practice Exam

In a life insurance policy, what does 'face amount' refer to?

1. The total premiums paid

2. The amount payable upon death or maturity

3. The cash value of the policy

4. The total interest accrued

The correct answer is: The amount payable upon death or maturity

The term 'face amount' in a life insurance policy refers to the amount that the insurer agrees to pay to the beneficiaries upon the insured's death or at the policy's maturity, assuming the policy is still in force at that time. This value is established at the inception of the policy and represents the basic sum insured. The face amount does not include any additional amounts that may be payable, such as riders or accumulated dividends, but it is the primary figure that outlines the insurer’s obligation upon a valid claim. Understanding the context of the other options clarifies why this answer is the most accurate. For example, the total premiums paid would represent the cumulative investment by the policyholder but would not determine the benefit payable upon death or maturity. The cash value of the policy is associated with cash accumulation in certain types of life insurance, like whole life insurance, but does not reflect the face amount. Lastly, total interest accrued might apply to certain types of accounts but has no direct association with the face amount of a life insurance policy. Therefore, the face amount clearly signifies the amount payable to beneficiaries, making it a crucial component of life insurance contracts.