Funds set aside by an insurer to pay future claims are called

Funds set aside by an insurer to pay future claims are referred to as reserves. This concept is fundamental in insurance as it ensures that the insurer can meet its contractual obligations to policyholders. Reserves are calculated based on various factors, including the expected cost of claims, timing of those claims, and the overall risk exposure of the insurer.

The establishment of reserves is crucial because it allows insurers to maintain financial stability and solvency. By properly allocating funds into reserves, companies can effectively manage cash flow and ensure that they have sufficient money available to cover claims when they arise.

Other terms listed in the choices relate to different aspects of insurance operations. For instance, dividends are typically the distribution of excess profits to policyholders, general accounts pertain to the overall financial management of an insurer’s assets and liabilities, and premiums refer to the payments made by policyholders for their insurance coverage. None of these terms encapsulate the specific role of funds that are designated specifically for future claims payments in the same way that reserves do.