BCH Actuarial Services Inc. can provide its clients with actuarial valuations of life insurance policies. For details on our fees and the process to request a valuation, click here.
In the case of marriage breakdown, the CSV (Cash Surrender Value) of a life insurance policy is typically used as the value of the policy for the purpose of property equalization. However, there are many cases when the CSV significantly understates the fair value of the life insurance policy and it would be appropriate to have policy valued by an actuary to ensure a fair division of assets between spouses.
There are various reasons why the Fair Market Value (FMV) of a life insurance policy can exceed the CSV. One reason is because the life insurance policy was designed with no CSV (i.e. some Term to 100 policies). Another common reason is because the health of the insured has declined since the policy has been issued; as a person’s health declines, the FMV of the policy will increase and approach the face value of the life insurance policy. For example, if a person who is terminally ill and is certain to die in the few days has a $100,000 life insurance policy in force, the FMV of the life insurance policy is $100,000 even thought the CSV will be substantially less or even $0.
As the result of taxation rules in Canada, the transfer of a life insurance policy requires a FMV valuation to be completed.
The advice of a tax advisor should be sought in order to fully understand the consequences of a potential transfer.