What does the term "reserve value" refer to in an insurance contract?

The term "reserve value" in an insurance contract refers to the amount needed to mature the policy. It serves as a liability on the insurer's balance sheet, indicating the funds that the company must hold to ensure that it can meet future policyholder claims and obligations. Reserve values are a critical component of life insurance and annuity contracts, as they reflect the insurer’s responsibilities to policyholders as claims come due or when policies reach maturity.

Life insurance policies are often designed based on the assumption that some policies will pay out at varying times, and maintaining the correct reserve value helps ensure that the insurer can meet those financial commitments when they arise. This calculation is based on various factors, such as mortality rates, investment returns, and policyholder behavior.