What term describes funds set aside to meet future obligations in an insurance policy?

The term "policy reserve" refers specifically to the funds that an insurance company sets aside to meet future obligations arising from the policies it has issued. This reserve is crucial for ensuring that the insurer can fulfill its policyholder commitments, such as paying out death benefits or cash values over time. Policy reserves are typically calculated based on actuarial evaluations that take into account various factors, including mortality rates, interest rates, and expected policy lapses.

By maintaining these reserves, insurance companies help ensure their financial stability and regulatory compliance, as they must demonstrate their ability to meet future liabilities. This term directly ties to how insurance policies function, particularly in the context of whole life and universal life insurance, where the policy's cash value accumulates and can be accessed by the policyholder.

While options such as premium fund, cash reserve, and claims fund are related to the financial operations of an insurance company, they do not specifically denote the practice of reserving funds to address future obligations related to existing policies like policy reserve does. Each of these other terms could refer to different aspects of insurance financing, but none encapsulate the primary concept of setting aside funds for stipulated future policy duties as clearly as "policy reserve."