In the case of an advance or partial payment, the loss reserve should not be adjusted to zero, but in cases of final payment, the loss reserve is adjusted to zero.

Question

Options

• ATrue
• BFalse

• A
  77% (47)
• B
  23% (14)

Explanation

Option A is correct because a loss reserve represents the estimated outstanding liability for a claim. When an advance or partial payment is made, the claim is not yet fully settled - there is still remaining liability, so the reserve must stay open (and may be adjusted, but not to zero). Only when a final payment closes the claim entirely is there no remaining liability, making it appropriate to reduce the reserve to zero.

Option B is wrong because it would imply the opposite - either that partial payments justify zeroing the reserve, or that final payments don't. Both of those are incorrect and would misrepresent the insurer's outstanding obligations.

Memory tip: Think of the reserve as a "placeholder" for money still owed. A partial payment means you still owe more, so the placeholder stays. A final payment means the debt is done - placeholder goes to zero. "Final = finished = zero."

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