Net Amount At Risk

What Does Net Amount At Risk Mean?

The net amount at risk is the difference between the face value of an insurance policy and the reserve that has been accumulated under the same policy. This figure mostly matters for permanent life insurance policies like whole life and universal life, where reserves build up over time. Term policies typically have no accumulated reserve, so the net amount at risk stays at the face value for the policy’s entire term.

Insuranceopedia Explains Net Amount At Risk

The net amount at risk represents the difference between the claim amount payable for an insured event and the reserve set aside to support that claim. This figure is significant for insurers as it indicates the potential profitability of the policy. The closer the accumulated reserve is to the face value, the smaller the loss the insurer incurs when paying out the full claim amount. As a policy’s cash value accumulates, the net amount at risk drops each year, which lets the insurer cover the rising mortality cost without raising the premium charged to the policyholder.