Page 168 - Ready Set Retire

Stephen J. Kelley

First, Legal Reserve life insurance companies are legally
prohibited from speculating with your money. Unlike banks,
markets or any other financial system, 100% of their
investment of your money must, by law, be invested in the very
safest monetary vehicles available.

Most goes into long-term investment-grade bonds, treasuries,
and conservative real estate and other types of commercial
developments.

Second, life insurance companies are required by law to
maintain a greater than one-to-one ratio of their capital to their
liabilities. If they bring in a dollar, unlike banks, they cannot
lend nine, or six, or three, or even one dollar. They can lend
out (invest) only what is left over after the reserve fund is set
aside.

A large percentage of each premium dollar calculated by
actuaries for each company goes into the policy owner's
reserve fund. This policy reserve (Legal Reserve) fund is a
liability to the life insurance company. The fund is established
as a way of determining or measuring the assets the company
must maintain to meet its future commitments under the
policies it has issued. The reserve liabilities are established as
financial safeguards to ensure the company will have sufficient
assets to pay its claims and other commitments when they fall

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