Definition
Sum at Risk
Sum at risk is the portion of the death benefit that the insurer must fund from pooled premiums, equal to the sum assured minus the policy's accumulated fund or reserve.
Also called net amount at risk, this is the genuine insurance exposure the insurer carries. In a ULIP or savings plan, if the death benefit is the higher of sum assured and fund value, the sum at risk is the gap the insurer would have to top up from the mortality pool over and above the policyholder's own accumulated money.
Mortality charges are levied on the sum at risk, not the full sum assured, so as a policy's fund or cash value grows, the sum at risk shrinks and mortality deductions fall. Understanding sum at risk explains why ULIP mortality charges can decline in later years even as age rises.
Related terms
- Sum AssuredSum assured is the guaranteed amount an insurer pays to the policyholder or nominee on the occurrence of the insured event.
- Mortality ChargeThe mortality charge is the cost an insurer deducts to provide pure life cover, based on the insured's age, health and the sum at risk.
- Unit Linked Insurance PlanA Unit Linked Insurance Plan (ULIP) is a life insurance product that combines life cover with investment in market-linked funds chosen by the policyholder.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.