DEFINITION of 'Amount at Risk'

The monetary difference between the death benefit paid by a permanent life insurance policy and the accrued cash value. For example, if a policy's death benefit is $200,000 and its accrued cash value is $75,000, then the amount at risk equals $125,000. The amount at risk determines the cost of protection provided by the policy.

BREAKING DOWN 'Amount at Risk'

For property and casualty insurers, amount at risk means the lesser of the full amount of coverage in the policy and the maximum possible loss that can be sustained by the insured. Therefore, this amount ultimately pertains to the insurers and not the insured.

RELATED TERMS
  1. Add To Cash Value Option

    A common benefit option on life insurance policies wherein the ...
  2. Life Insurance

    A protection against the loss of income that would result if ...
  3. Level Death Benefit

    A life insurance payout that is the same whether the insured ...
  4. Permanent Life Insurance

    An umbrella term for life insurance plans that do not expire ...
  5. Decreasing Term Insurance

    A type of annual renewable term life insurance that provides ...
  6. Variable Life Insurance Policy

    A form of permanent life insurance, Variable life insurance provides ...
Related Articles
  1. Managing Wealth

    Life Insurance With an Increasing Death Benefit

    Why buy a life insurance policy with an increasing rather than level death benefit
  2. Financial Advisor

    Advising FAs: Explaining Life Insurance to a Client

    Life insurance was initially designed to protect the income of families, particularly young families in the wealth accumulation phase, in the event of the head of household's death.
  3. Financial Advisor

    Permanent Life Policies: Whole Vs. Universal

    If you're looking for life-long security, choosing between these two is the key.
  4. Financial Advisor

    7 Issues to Consider When Determining Life Insurance Coverage

    Seven issues to consider when buying life insurance to ensure the coverage is tailored to meet your personal financial situation.
  5. Managing Wealth

    Mistakes to Avoid When You Own Life Insurance

    How to avoid some common mistakes that can cause tax and inheritance problems when you own life insurance.
  6. Financial Advisor

    Buying a Life Insurance Policy? Read This First

    Knowing who needs life insurance, how it works and the different types of insurance can help consumers make informed decisions about this product.
  7. Insurance

    6 Ways To Capture The Cash Value In Life Insurance

    If you die with cash value left in your life insurance policy, the money goes to the insurance company – not to your beneficiaries. Here's what to do instead.
  8. Insurance

    How Cash Value Builds In A Life Insurance Policy

    If you have permanent life insurance, more of your insurance premium goes to cash value in the early years of your policy: a step-by-step guide.
  9. Financial Advisor

    Understanding Life Insurance Premiums

    When buying permanent life insurance, what amount of premium should you pay for the coverage?
Hot Definitions
  1. Revolving Credit

    A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is ...
  2. Marginal Utility

    The additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important ...
  3. Contango

    A situation where the futures price of a commodity is above the expected future spot price. Contango refers to a situation ...
  4. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  5. Acid-Test Ratio

    A stringent indicator that indicates whether a firm has sufficient short-term assets to cover its immediate liabilities. ...
  6. Floating Exchange Rate

    A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that ...
Trading Center