Life & Health Insurance Practice Exam

The term that refers to the measurement of an insurer's future obligation to its policyholders is reserves. Reserves are essential for insurance companies as they represent the amount of money set aside to pay for future claims and fulfill their contractual obligations to policyholders. This amount is calculated based on a variety of factors, including the type of insurance policies issued, the expected duration of these policies, the risk associated with underwriting them, and historical claims data. Properly managing reserves ensures that an insurer remains financially solvent and can meet its commitments to policyholders as claims arise over time.

In contrast, claims refer to the requests made by policyholders for payment under their insurance policy, while liabilities generally encompass a broader spectrum of obligations an insurer may have, which can include reserves as well as other debts. Underwriting is the process of evaluating risks and determining the terms of the insurance policies, but it does not directly measure future obligations. Understanding the role of reserves highlights the importance of financial planning and risk assessment in the insurance industry.