Life Insurance Valuation – Mortality and Discount Rates

When valuing life insurance or life insurance-linked instruments such as split-dollar collateral assignment receivables or split-dollar promissory notes, the three elements of Fair Market Value are: (1) the illustrations from the insurance company projecting expenses, premiums, and cash values, (2) the mortality rates applicable to the insured life as of the valuation date, and (3) the discount rates applicable to the cash flows from the policy as of any given year. This section discusses mortality estimates.