In permanent life insurance, the Net Amount at Risk (NAAR) is the amount the insurance company pays from its own funds if you pass away — simply your total death benefit minus the cash value you've accumulated inside the policy.
The Basics of NAAR
Two Components
Permanent policies (whole or universal life) include a guaranteed death payout and a built-in cash value savings component.
How It Works
As premiums are paid over time, cash value grows and funds part of the final death benefit. The remaining difference the company must cover from its own funds is the NAAR — their actual risk.
Real-World Example
Total Death Benefit
Full payout received by your family
Cash Value Built Up
Accumulated inside the policy
NAAR
What the insurer covers from its own funds
Your family still receives the full $500,000 — but the insurance company only contributes $450,000 of its own money to fulfill the claim.
Why NAAR Matters
Internal Policy Fees
NAAR dictates the internal fees deducted from your policy for actual death coverage.
Rising Age-Related Costs
As you age, insuring your life becomes more expensive per dollar of coverage.
Cash Value as a Buffer
Growing cash value shrinks the NAAR over time, helping offset rising age-related insurance costs.
Net Amount at Risk (NAAR)