Life Valuator is a service of Hawkins Consulting Corporation.
Hawkins Consulting can provide you with an estimate of the fair market value of a life insurance policy. This valuator service is also available for other types of insurance policies such as life annuities and disability insurance.
Proving this service since 2006, Hawkins Consulting has appraised over $1 billion of life insurance. Valuation results vary significantly from one policy to another. In some cases clients seek confirmation that the fair market value is equal to the cash value. In other cases clients seek an estimate of how much the fair market value exceeds the cash value.
Hawkins Consulting provides exempt status assessments on non-Canadian life insurance policies to determine whether policies are subject to accrual taxation. Hawkins Consulting has assessed the exempt status of $100’s of millions of non-Canadian life insurance.
A life insurance policy can have a fair market value that is materially larger than its cash surrender value. A larger fair market value can arise from:
Use fair market value of a life insurance policy for:
Sale to Non-Arm’s Length Party
Sale to Arm’s Length Party
Surrendering a Policy
Equalization on Spousal Death
Immigrating and Emigrating
A split ownership of a life insurance policy has similar uses for a fair market value estimate.
Learn more about using the fair market value of a life insurance policy and getting an estimate:
What matters are considered in performing a fair market valuation?
Main considerations in valuing a life insurance policy:
Why do life insurance policies have a fair market value?
In simple terms, under a life insurance policy, an insurance company pays a death benefit upon death of the life insured in return for receiving payment of premiums so long as the life insured survives. If present value of the death benefit to be received is greater than present value of the premiums to be paid then the life insurance policy has value. A fair market value is estimated by calculating these present values using appropriate rates of interest and mortality. Various features and options that may be included within an insurance policy also need to be given their due consideration, making an estimation of fair market value somewhat more complex.
What is ‘cash surrender value’ and why isn’t that the fair market value?
The cash surrender value of a life insurance policy is merely a particular offer from the insurance company to “buy back” the policy. The cash surrender value does not necessarily bear any relationship to the fair market value of the policy. Since a policyowner has the right to ‘sell back’ the policy to the insurance company for its cash surrender value, the fair market value is never less than the cash surrender value; the cash surrender value is the floor in determining fair market value.
Who is the ‘life insured’?
The ‘life insured’ is the life whose survival or death is referenced for payment of premiums and benefits under a life insurance policy. Sometimes a life insurance policy will name more than one ‘life insured’ with the death benefit being payable on either the first death or the last death.
How do you assess health?
Medical files on the life insured are to be provided. These files will be released to professional underwriting firms that are experienced in making health assessments and evaluating how health impairments affect mortality rates.
Is an assessment of health required?
It is required for an unqualified estimate of fair market value. If health is not assessed, the estimate that is provided will contain a statement with regard to an assumed health status.
Will privacy be respected?
Yes. The medical files of the life insured will be released only to retained professional underwriting firms for the specific purpose of making the health assessment. Hawkins Consulting will not use medical files or any other personal information for any other purpose whatsoever. Information received will be retained according to our information retention policy and then destroyed.
The life insured (or the person with the appropriate capacity) will be required to sign a consent form. If the person requesting the valuation is not the life insured, then they must obtain consent from the life insured before Hawkins Consulting will accept receipt of any medical files or other personal information.
Hawkins Consulting complies with applicable privacy rules.
How will health status affect the fair market value of a life insurance policy?
The health of the life insured will determine the likelihood of when the life insured might die. If death of the life insured is more likely to occur sooner rather than later then the death benefit is likely to be payable sooner rather than later. Due to the time value of money, an increased likelihood of the death benefit being payable sooner rather than later increases the fair market value of the life insurance policy. Additionally, where premiums are payable, an increased likelihood of death sooner rather than later decreases the expected cost of paying premiums and similarly increases the fair market value of the life insurance policy.
If the life insured is in good health, can the life insurance policy have a fair market value higher than the cash surrender value?
Yes. This is particularly true where policies have unnaturally low cash surrender values. For example, some life insurance policies are paid-up at age 100 but never have a cash surrender value (Term-to-100). Other life insurance policies will have a low cash surrender value by insurance company design. Also, cash surrender values may be low today because of external factors such as current interest rate levels. As an example, one life insurance policy valued by Hawkins Consulting that had $200,000 death benefit and $19,000 cash surrender value, was estimated to have a fair market value of $72,000 assuming the life insured was healthy, this result was due to the policy having unnaturally low cash surrender values and interest rates being relatively low at the valuation date.
Why do some policies have ‘unnaturally low cash surrender values’?
Cash surrender values are a variable set by the insurance company when it issues the policy. The insurance company can set cash surrender values low or high or about right. In the 1980’s life insurance companies in Canada introduced low and zero cash surrender value policies with the idea that some policies would be forfeited by non-payment of premiums for the insurance company’s gain. These types of policies continue to be sold.
How will I know if a policy has ‘unnaturally low cash surrender values’?
A paid-up life insurance policy with zero cash surrender value obviously has unnaturally low cash surrender values. In some cases it will be obvious in other cases it will not be obvious. Having a valuation performed will determine whether the cash surrender value is low, and by how much.
Can term life insurance policies have a fair market value that is more than zero?
Yes. Term life insurance policies provide temporary coverage. Term life insurance policies typically will only have significant value if the health of the life insured is impaired. The remaining term of the life insurance policy and any conversion rights will be important determinants of value. Of course, policies with names such as “Term to 100” are not temporary coverage and may have significant value in any event.
Can term life insurance policies have a fair market value that is more than zero if the life insured is in good health?
Certain term life insurance policies with level premiums (e.g., “Term to 65”) provide only temporary coverage but may have positive value even if the life insured is in good health. This value may be small relative to the death benefit but for policies with large death benefits the value might be material.
Will a life insurance policy always have a fair market value greater than its cash surrender value?
No. The fair market value will not be less than the cash surrender value but it will not necessarily be more. It may not be obvious whether the fair market value is greater than the cash surrender value. The circumstances will dictate whether it is worthwhile obtaining a valuation to remove the uncertainty as to what is the fair market value.
Why should I select Hawkins Consulting to provide the valuation?
Experience, expertise and service.
Hawkins Consulting provides:
What information do I need to provide to obtain a valuation?
You need to provide:
Review the process and complete and provide your information using this form: Information to Get Started (.pdf) Information to Get Started (.doc)
What if medical files are not provided?
Without medical files, an unqualified estimate of fair market value cannot be provided. However, an estimate can still be provided that contains a statement regarding an assumed health status of the life insured.
What do I get when I have Hawkins Consulting perform a valuation?
You will receive a full report on the valuation of the life insurance policy. The report will: provide the fair market value estimate; summarize the policy; summarize the valuation methods employed; summarize the valuation assumptions used; contain a summary of the health assessment prepared by the underwriting firm that reviewed the health of the life insured; and be signed by a qualified actuary.
What if I need an expert witness to testify as to the fair market value of a life insurance policy?
Hawkins Consulting will make Michael Hawkins, F.C.I.A., F.S.A. available as an expert witness for any valuation performed by Hawkins Consulting. Michael is also available to act in the role of expert witness or consultant to review any other valuation of a life insurance policy. There are additional charges for these services.
What is the turn-around time?
Upon receipt of the required information, it is estimated that it will take 3 to 4 weeks to complete a valuation. This turn-around time is dependent on the underwriting firms, which may require most of the allotted time.
If the valuation is being prepared without an assessment of the health of the life insured, the valuation will be completed within 2 weeks of receipt of the required information.
What does it cost?
There is a fee for each life insured. There is a fee for each life insurance policy. Contact Hawkins Consulting to obtain a quote or calculate the fee: Fee Schedule
How do I get started?
Review the process: Getting a Fair Market Value Estimate
Contact Hawkins Consulting and provide:
You can provide your information using this form: Information to Get Started (.pdf) Information to Get Started (.doc)
You will then be provided with an engagement agreement to sign and consent forms for the lives insured to sign. Work on your case will begin upon payment of fees and receipt of required information.
How do I contact Hawkins Consulting?
The choices are here: Contact Us
What is the process if I need an updated valuation of a life insurance policy?
Where Hawkins Consulting has previously valued a life insurance policy, an updated valuation can be obtained. Contact Hawkins Consulting to request an updated valuation. Fees may be reduced depending on the time elapsed since the prior valuation. If the valuation is to reflect updated medical files then there will be no reduction in fees.
Will Hawkins Consulting facilitate the sale of my policy?
No. Hawkins Consulting is providing a valuation service. If you are selling your policy, you will need to make your own arrangements or contact a party who does provide that service.
Replacement Cost Estimate – replacement cost differs from fair market value and will typically exceed fair market value, often materially. There are circumstances when a replacement cost estimate is desired (e.g., negotiating price where one party is selling policy to another party who has an insurable interest in the life insured). Hawkins Consulting provides replacement cost estimates.
Taxation – there are special income tax rules for life insurance policies and life annuities. Hawkins Consulting has the knowledge and expertise to advise on these tax rules and to prepare the required calculations and demonstrations. Taxation of non-Canadian life insurance policies and life annuities can be particularly complex, to learn more see: Taxation of Non-Canadian Life Insurance Policies
Policy Management – life insurance policies can be full of features and options. Hawkins Consulting can assist in managing these features and options or setting up strategies for their ongoing management. Efficient use of features and exercise of options can add significant value, while poor choices can destroy value.
Scheme Assessment – review proposals and schemes that involve life insurance and other forms of insurance such as life annuities and disability insurance. Hawkins Consulting can provide valuable assistance to accountants, lawyers, insurance brokers and other advisors in their review of such schemes.