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“Amount at risk” is a financial term used in life insurance, property insurance, and liability insurance to calculate the monetary amount of coverage provided by the policy and the amount of loss that the person holding the insurance is likely to incur. It can also refer to the amount a business owner is likely to lose on a business.
“Amount at risk” is a financial term typically used to refer to 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 policyholder less the cash value amount. The term is also sometimes applied to other types of insurance policies and takes into account the monetary amount of coverage provided by the policy and the amount of loss that the person holding the insurance is likely to incur. In this case, the lower of the two amounts is referred to as the amount at risk. Also, this term sometimes refers to the amount a business owner is likely to lose on a business.
The financial term “amount at risk” is often used to refer to mathematical calculations involving life insurance. For example, this term is often used to calculate the amount remaining when subtracting the cash value a person has in a life insurance policy from the total amount of money its beneficiaries would receive upon her 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 in effect. If the same policy has a current cash value of $100,000 USD, you need to subtract that amount from the coverage amount to get the amount at risk. In this case, the calculated amount would be $400,000 USD.
In addition to its application to permanent life insurance, the 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 cause for injury or negligence. In this case, the calculation is handled a little differently. The amount at risk in such a case is actually the lowest number when comparing the total amount of coverage a policyholder has and the maximum amount of loss they could incur. For example, if your policy limit is $500,000 USD and your maximum loss amount is $800,000 USD, then $500,000 USD is the amount at risk.
This term is also sometimes applied to businesses. In that case, an entrepreneur’s amount at risk is equal to the amount of money he has invested in his assets. This means that a person who has contributed $250,000 USD to his business risks $250,000.
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