This year I have fielded perhaps a dozen inquiries about valuing life insurance policies. In previous years, these were very rare. After checking things out with several people, I realized that the causes of the increase in inquiries are the recession (some want to sell or cash in policies) and changed market conditions (which affect policy resale values).
I am always flattered when people call me for valuation help, but I am not qualified to value life insurance policies. I refer such people to:
1. The company that underwrote the policy, to quote cash value. Cash value is what the policy owner would receive to close out the contract and is determined by the policy. It is just like a private company shareholder selling their stock to a company that has a buy-sell agreement that specifies value.
2. Insurance brokers, to quote resale value. Resale value is what the owner would receive if the policy were sold to a third party and remained in force. The third party (the new owner of the policy) pays future premiums and receives the death benefit. Here the private company shareholder is trying to find a better deal on the open market, but that market is illiquid.
It seems to me that cash value is the minimum possible value. A willing seller would never accept less than that. Resale value, if available (there may be no market for some policies), may be higher. But, again, I do not value life insurance policies.