What is the "Net Amount at Risk" in variable life policies?

The term "Net Amount at Risk" in variable life insurance policies refers specifically to the difference between the death benefit and the cash value of the policy. In instances where the cash value, which is invested in a separate account, is lower than the death benefit, the net amount at risk represents the amount that the insurer would need to pay out in the event of a claim. Thus, this concept is essential for understanding how much protection the policyholder actually has, as well as the insurer's financial exposure.

When the cash value increases due to investments or premiums paid into the policy, the net amount at risk decreases, reflecting a reduced liability for the insurer. Conversely, if the cash value falls, the net amount at risk increases, as the insurer bears more risk.

In this case, selecting the correct answer highlights the specific relationship between the death benefit and the separate account value, providing insight into the policy's performance and the insurer's obligations. This understanding is critical for both policyholders evaluating their coverage and for agents advising clients on variable life insurance options.