Finance
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What does "Amount at Risk" Mean?

Nicole Madison
Nicole Madison
Nicole Madison
Nicole Madison

"Amount at risk" is a financial term typically used to indicate differences in monetary amounts for a life insurance policy. Usually, it is the amount a life insurance beneficiary will receive upon the death of the insured party minus the amount of current cash value. The term also is sometimes applied to other types of insurance policies and takes into account the monetary amount of coverage the policy provides and the amount of loss it is possible for the person who holds the insurance to suffer. In such a case, the lesser of the two amounts is referred to as the amount at risk. Additionally, this term sometimes refers to the amount a business owner stands to lose on a business.

The financial term "amount at risk" is often used to refer to mathematical calculations involving life insurance. For instance, this term is often used to calculate the amount left when subtracting the cash value a person has in a life insurance policy from the total amount of money his beneficiaries would receive upon his death. For example, if an individual has a policy worth $500,000 US Dollars (USD), his beneficiaries can expect to receive this amount if he dies while the policy is valid. If the same policy has a current cash value of $100,000 USD, one must subtract this amount from the coverage amount to get the amount at risk. In this case, the calculated amount would be $400,000 USD.

"Amount at risk" is the amount a life insurance beneficiary will receive upon the death of the insured party minus the amount of current cash value.
"Amount at risk" is the amount a life insurance beneficiary will receive upon the death of the insured party minus the amount of current cash value.

In addition to its application to permanent life insurance, amount at risk comes into play in property insurance, which covers physical property, and liability insurance, which covers a person or business in the event of a lawsuit over injury or negligence. In this case, the calculation is handled a little differently. The amount at risk in such a case is actually the lower number when comparing the total amount of coverage an insured party has and the maximum amount of loss he could suffer. For example, if the policy limit is $500,000 USD and the maximum loss amount is $800,000 USD, then $500,000 USD amount is the amount of money at risk.

The "amount at risk" takes into account the amount of coverage the policy provides and the amount of loss that the policyholder will suffer.
The "amount at risk" takes into account the amount of coverage the policy provides and the amount of loss that the policyholder will suffer.

This term is sometimes even applied to businesses. In such a case, a business owner’s amount at risk is equal to the amount of money he has invested in his businesses. This means a person who has contributed $250,000 USD to his business is risking $250,000.

Nicole Madison
Nicole Madison

Nicole’s thirst for knowledge inspired her to become a writer, and she focuses primarily on topics such as homeschooling, parenting, health, science, and business. When not writing or spending time with her four children, Nicole enjoys reading, camping, and going to the beach.

Nicole Madison
Nicole Madison

Nicole’s thirst for knowledge inspired her to become a writer, and she focuses primarily on topics such as homeschooling, parenting, health, science, and business. When not writing or spending time with her four children, Nicole enjoys reading, camping, and going to the beach.

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    • "Amount at risk" is the amount a life insurance beneficiary will receive upon the death of the insured party minus the amount of current cash value.
      By: pixelrobot
      "Amount at risk" is the amount a life insurance beneficiary will receive upon the death of the insured party minus the amount of current cash value.
    • The "amount at risk" takes into account the amount of coverage the policy provides and the amount of loss that the policyholder will suffer.
      By: edbockstock
      The "amount at risk" takes into account the amount of coverage the policy provides and the amount of loss that the policyholder will suffer.