Net Amount At Risk

At issue, Dev's $500,000 whole life policy has essentially no cash value. At age 78 the same policy shows $340,000 of cash value. Regarding the NET AMOUNT AT RISK to the insurer, which statement is correct?

1. A.It remains $500,000, because the insurer is contractually obligated for the entire face amount at deathThe insurer does pay $500,000, but $340,000 of it is already funded by the policy's own cash value. Net amount at risk measures the unfunded slice.
2. B.It has risen to $840,000, because cash value is paid in addition to the face amount on a traditional whole life policyTraditional whole life pays the face amount only; cash value is absorbed into it. Paying both is a feature of Option B universal life, not whole life.
3. C.It has fallen to $160,000, because the accumulating cash value funds a growing share of the $500,000 payable at deathCorrect. $500,000 - $340,000 = $160,000. The insurer's own exposure shrinks as cash value grows, which is what keeps the level premium workable at advanced ages.
4. D.It is $340,000, because the cash value is the portion the insurer must fund from its general accountThis inverts the subtraction. The cash value is the funded portion, so the amount at risk is the remainder.

Why: The net amount at risk is the death benefit minus the policy's cash value: the slice the insurer itself must supply if the insured dies. As cash value builds, that slice shrinks. Here it has fallen from about $500,000 to $160,000. This is exactly why a level premium can stay level even though the raw chance of death keeps climbing with age. The clue is the pairing of a fixed face amount with a large accumulated cash value.

Under a universal life policy with the Option A (level) death benefit, as the cash value grows over the years, the insurer's net amount at risk...

1. A.DecreasesCorrect — under level Option A, rising cash value means a shrinking net amount at risk.
2. B.IncreasesA growing amount at risk would describe Option B (increasing), not Option A.
3. C.Stays exactly the sameUnder Option A the amount at risk falls as cash value climbs, because the total benefit is level.
4. D.Drops to zero immediatelyThe amount at risk declines gradually as cash value grows; it does not vanish at once.

Why: With Option A the total death benefit stays level, so as the cash value rises the pure insurance portion (the net amount at risk) shrinks. The insurer is on the hook for less as the account value grows.