Many new owners of life insurance policies either purchased or received as a gift are shocked when they find out the valuation of the policy. Many fixed-income assets, such as life insurance policies are valued through a discounted cash flow framework, which calculates the present value with a discount rate. However, finding the proper discount rate for illiquid assets takes a significantly large amount of research of illiquid asset transactions, which are relatively rare. Commonly used analogue assets for discount rate research include private notes, structured settlements, and life settlements.
See Espen Robak, The Whys and Hows of Valuing Life Insurance, Wealth Strategies Journal, Dec. 15, 2014.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.
