Rachel Bodine graduated from college with a BA in English. She has since worked as a Feature Writer in the insurance industry and gained a deep knowledge of state and countrywide insurance laws and rates. Her research and writing focus on helping readers understand their insurance coverage and how to find savings. Her expert advice on insurance has been featured on sites like PhotoEnforced, All...

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insurance...

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Reviewed by Leslie Kasperowicz
Former Farmers Insurance CSR

UPDATED: Oct 30, 2020

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Simply put, the policy valuation of an insurance policy is a representation of the policy’s current value. This is particularly significant in terms of permanent life insurance policies.

It’s important to note that if you are considering purchasing life insurance then most people will be best served by purchasing a cheap term life insurance policy, which does not have a cash surrender value. Only permanent life insurance policies such as whole life insurance, universal life insurance, variable life insurance, and others have a cash surrender value. If you do not have complex estate planning needs or other reasons to buy an expensive permanent life insurance policy, then generally speaking, your best option is to shop for term life insurance quotes and choose a term life policy (often less than $50/month as opposed to many hundreds or thousands of dollars a month for a permanent policy).

Buying and Selling Life Insurance Policies

There is a growing market for “Second hand” life insurance policies – that is people are willing to buy out life insurances policies from individuals in need of cash and then continue paying the premiums until such a point as the policy pays out its cumulative value.

This is a common situation because often the “cash surrender value” which is what an insurer will pay for the policy based on its immediate cancellation and surrender to the insurance company is often lower than policy valuation placed on a policy by third parties.

This allows for a competitive bidding model in which investors seek to take policies that will give them a healthy return for their investment at a more competitive rate than the life insurance policy provider is willing to apply.

In essence a policy valuation is the value of a single insurance policy in dollar terms. This can lead to some confusion for policy holders and it’s worth bearing a few points in mind before accepting an individual policy valuation.

Purchasers are looking for a healthy return and ideally a quick return, in the case of life insurance this can feel a little ghoulish as the policy valuation for a person who has a short life expectancy can be dramatically higher than for someone with a similar policy with a much longer expected period of longevity.

That’s because in the first instance the benefits paid out under the policy are likely to be fairly immediate, whereas under the second policy they are likely to be later when the payout may not be worth as much in real terms (because of inflation) and when the policy’s new owner has contributed a substantial amount of increased premiums.

Determining a policy valuation is as much of an art as it is a science and there is reasonable competition amongst valuers that should enable a policy holder to receive a fair policy valuation which exceeds the cash surrender value of their policy.

If you are considering accepting a policy valuation on a life insurance policy it is recommended that you seek professional advice, in order to maximize your returns and reduce your exposure to potential losses.

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Additional Definitions For Policy Valuation

  • Benefit House – One important feature of permanent life insurance, which is not found in most term life insurance policies, is a “cash value.”  When your premium payments are more than the cost of insurance, the excess goes into a cash value account and draws interest. It is the “savings” portion of a life policy…