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Voluntary Reserve

What Does Voluntary Reserve Mean?

A voluntary reserve refers to monetary or other liquid assets set aside voluntarily by insurance companies. As government agencies do require a certain reserve amount, voluntary reserves are surplus or additional liquid assets above the requirement.

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Insuranceopedia Explains Voluntary Reserve

To ensure the solvency of banks, financial institutions and insurance companies, government agencies prescribe a certain amount of monetary reserves that these entities should hold. However, a company wanting to be more fiscally sound may voluntarily set aside an amount beyond the requirements.

Insurance companies establish a voluntary reserve for various reasons. The most common is that it helps makes them appear liquid and stable. Moreover, it can act as a contingency fund, that is, to meet unforeseen obligations and pay future liabilities.

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