Cash Value vs Reserve

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  • #1489
    ikhlef lounis
    Participant

    Hello all,

    First thanks to anyone who contributed to get the AO back! Much appreciated!

    Ver basic question for me today, maybe someone could shed a bit of light for me today. What is the difference between reserves and cash values on a whole life policy?

    Thanks 🙂

    #1678
    Chuck Ritzke
    Participant

    Not entirely sure what you’re asking spefically…

    Purpose? = Cash value intended to provide a fair value to surrendering policyholder. Reserve intended to define the amount(s) company must “reserve” to ensure they’re able to pay future benefits. Of course, that’s all an oversimplification.

    Method of Calculation? – Is at a high level, often much the same but with different assumptions (if we’re talking about the traditional seriatim net reserve values per policy and not company level reserves based on cash flow testing and PBR, etc). Interest earning and expense allowance assumptions are generally more conservative for reserves (ie lower). Also you said “whole life” and not “universal life”. The latter has methods that vary from traditional. And as referenced parenthetically above, reserves are often calculated at the company (or line of business) level because the purpose is ensuring the company can pay future benefits.

    Assumptions? – Generally (see purposes above as to why – also often somewhat prescribed by regulations) may differ (mortality, interest, expense allowances).

     

    Hope this helps.

    #3486
    williamramirez
    Participant

    I understand that monetary value is the amount of money you need for a month or a year’s stay. And the reserve is your reserve of money that you can set aside as an investment.

    #3520
    williamramirez
    Participant

    I understand that monetary value is the amount of money you need for a month or a year’s stay. And the reserve is your reserve of money that you can set aside as this investment.

    Or invest in your own business or real estate.

     

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