What are Life Insurance Reserves?
The reserve in a life insurance contract of policy is the amount of money needed to offset the difference between the present value of future benefits and the present value of future net level premiums. Ya I know a little confusing? So at the beginning of to policy the two are equal because of the actuarially pricing that makes them equal to each other.
Once you start paying premiums into the policy though, the present value of future net level premiums starts to decline, then the present value of future benefits starts to increase. The difference between the two amounts then equates to equal the reserve.
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