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Classified Balance Sheets

Classified Balance Sheets

In spite of their conceptual advantages, the pro-ratable income and
the present value income methods require subjective measurements that
make them difficult to implement. Under the present value income
method, an appropriate discount rate must be determined. Under both
methods, the amount of income recognized each year depends on an
estimate of the insured’s life expectancy.

cash surrender value of life insurance balance sheet classification

In many cases, it is possible to use the cash value in your account to pay your premiums. You can also take out loans against your cash value, and keep the policy. Don’t overestimate your surrender or cash value, which is not reflective of the amount of coverage you have taken out for the death benefit. A cash value is tied to the policy as a benefit to help offset the rise in premiums as you grow older and offers policyholders access to money they can borrow. Cash surrender value is the accumulated portion of a permanent life insurance policy’s cash value that is available to the policyholder upon surrender of the policy. Depending on the age of the policy, the cash surrender value could be less than the actual cash value.

What is Cash Surrender Value?

The discount, usually ranging from 10% to
40% of the policy’s face value, is based on the insured’s life
expectancy. The third party then markets its life insurance policy
inventory through its network of insurance agents and financial
planners, who earn commissions based on the face amount for
identifying and arranging for the sale of policies to investors. For example, suppose you take out a whole life insurance policy for $100,000. You will have to pay $3,000 in charges, and you will only get $7,000 out of the cash surrender.

For these reasons, the net balance in the other current assets line item is typically quite small. If the account grows to material proportions, this may mean that it contains one or more assets that should be reclassified into “major” current assets, and be itemized separately in their own accounts. When determining your cash surrender value, you must consider any fees your company will charge for removing your money funds. In order to determine how much money you will receive in a cash surrender, you must add up all the payments you have made to the policy and then subtract the fees and possible penalty withdrawal charges.

Reduction of Benefits and Charges

Additionally, the company must understand the type of life insurance policy. Generally, if the life insurance policy has a cash surrender value, this value should appear on the balance sheet. In the event the insured carries a life insurance policy which pays cash dividends (e.g., whole life insurance), these dividends do not count as income on a taxpayer’s return.

Is cash surrender value the same as accumulated value?

The accumulation value of an annuity is the overall value of the annuity. However, the cash surrender value differs from the accumulated value in that the amount available to withdraw from the policy is subject to a 10% surrender penalty.

You most likely won’t pay taxes on the cash surrender because it is considered a return of premiums on your account and not taxed. It penalizes the policy purchaser and significantly
distorts income over the policy’s life. If a policy has a cash
surrender value, the purchaser’s cost will undoubtedly exceed this
amount, resulting in a sizable loss for financial reporting purposes
on the acquisition date. For term policies without cash surrender
values, the purchaser’s entire cost is recognized as a loss.


A policy’s cash value may be used as collateral for low-interest policy loans. If not repaid, the policy’s death benefit is reduced by the outstanding loan amount. Loans are tax-free unless the policy is surrendered, which makes outstanding loans taxable to the extent they represent cash value earnings.

Further, a cash withdrawal up to the policy basis usually suffers no tax consequences because proceeds from life insurance policies are not taxable generally. With viatical settlements burgeoning into the broader sector of life
settlements, many insureds now sell their policies to investors using
settlement companies—a largely unregulated market that divides
policies into fractional interests. Following recent attempts to sell
these interests as securities under the Securities Act of 1933 and the
Securities Exchange Act of 1934, several states have begun to enact
statutes to regulate viatical settlements. We believe it’s time to change the method of accounting for life
insurance, and in this article we’ll describe an alternative method we
think FASB should consider. While not always advisable, you may be able to sell your life insurance policy to a third party for cash. Whole, universal, variable universal, and indexed universal life insurance often have a cash value component to them.

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