{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/325/30/#05-overview-and-background","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"325","topic_title":"Investments—Other","subtopic":"325-30","subtopic_title":"Investments in Insurance Contracts","section":{"number":"05","label":"05 Overview and Background","anchor":"05-overview-and-background","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"325-30-05-1","para":"05-1","html":"
This Subtopic presents guidance in the following Subsections:
  1. a
    General
  2. b
    Life Settlement Contracts.
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The General Subsections provide guidance on accounting for investments in life insurance contracts generally, including the calculation of the amount that could be realized under the life insurance contract.
","snippet":"The General Subsections provide guidance on accounting for investments in life insurance contracts generally, including the calculation of the amount that could be realized under the life insurance contract.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a47e3dfa4694821a26fb18082e9c9ceb2d2baeff2fabddbddca2f1ea7201e424","downloaded_from":"2026-09-09T23:43:57.769Z","last_downloaded_at":"2026-09-09T23:43:57.769Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481477","source_sha256":"f4c20246e664e9dbc486de57a0a986494ff44aee26284a4a710273308bcbae16"}},{"citation":"325-30-05-3","para":"05-3","html":"
A premium paid by a purchaser of life insurance serves a variety of purposes. A portion of the premium pays the insurer for assumption of mortality risk and provides for recovery of the insurer's contract acquisition, initiation, and maintenance costs. Another portion of the premium contributes to the accumulation of contract values. The relative amounts of premium payment credited to various contract attributes change over time as the age of the insured party increases and as earnings are credited to previously established contract values.
","snippet":"A premium paid by a purchaser of life insurance serves a variety of purposes. A portion of the premium pays the insurer for assumption of mortality risk and provides for recovery of the insurer's contract acquisition, in…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:66121326460ba54c0171a10897bef61d623a9fdb25cb8f6c57fa5be45b6296fc","downloaded_from":"2026-09-09T23:43:57.769Z","last_downloaded_at":"2026-09-09T23:43:57.769Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481477","source_sha256":"f4c20246e664e9dbc486de57a0a986494ff44aee26284a4a710273308bcbae16"}},{"citation":"325-30-05-4","para":"05-4","html":"
A life insurance contract is significantly different from most investment agreements. The various attributes of the policy could be obtained separately through term insurance and purchase of investment. The combination of benefits and contract values could not, however, typically be acquired absent the insurance contract. Continued protection from mortality risk and realization of scheduled increases in contract accumulation usually requires payment of future premiums.
","snippet":"A life insurance contract is significantly different from most investment agreements. The various attributes of the policy could be obtained separately through term insurance and purchase of investment. The combination o…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:cade0ca69ee03c06e09ee58492df41da439cbe24fd64821da445f4d07165b2b9","downloaded_from":"2026-09-09T23:43:57.769Z","last_downloaded_at":"2026-09-09T23:43:57.769Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481477","source_sha256":"f4c20246e664e9dbc486de57a0a986494ff44aee26284a4a710273308bcbae16"}},{"citation":"325-30-05-5","para":"05-5","html":"
The payment of insurance premiums may take a number of different forms. The insurance contract may be purchased through payment of a single premium, as opposed to the typical series of future premiums. Alternatively, the premium payments may be made through loans from the insurance entity that are secured by policy cash surrender values. The pattern of premium payments is a decision that does not alter the underlying nature of the insurance contract.
","snippet":"The payment of insurance premiums may take a number of different forms. The insurance contract may be purchased through payment of a single premium, as opposed to the typical series of future premiums. Alternatively, the…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9627aa174e1f5a2344d261d87887f4a0aee98a80ea083cc175e1551384a133a5","downloaded_from":"2026-09-09T23:43:57.769Z","last_downloaded_at":"2026-09-09T23:43:57.769Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481477","source_sha256":"f4c20246e664e9dbc486de57a0a986494ff44aee26284a4a710273308bcbae16"}},{"citation":"325-30-05-6","para":"05-6","html":"
Life insurance policies are purchased by entities for a variety of purposes, including funding the cost of providing employee benefits and protecting against the loss of key persons. These types of policies have generally been known as corporate-owned life insurance or bank-owned life insurance. One of the primary benefits to using an insurance policy as a funding mechanism is the ability for an entity to receive the death benefits tax-free. Investment income is accumulated tax-free through the internal build-up of the cash surrender value. In the event that a policy is surrendered early, the policyholder will be responsible for paying the tax on the previously unrecognized investment income. The tax on the cash surrender value can be significant if the policies have been held for a number of years. Corporate-owned and bank-owned life insurance arrangements are established using several different insurance products, including all of the following:
  1. a
    Universal-life policies
  2. b
    Variable-life policies
  3. c
    Whole-life policies.
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There are a few basic structures currently used as a framework for most policies in the marketplace. However, these structures can be combined and modified in many different ways and, therefore, can be quite complex. All of the following life insurance policy structures are considered in this guidance:
  1. a
    Individual-life policy. The individual-life policy generally has one contract value component and, in some cases, a surrender charge. The amount that could be realized for this policy upon surrender is the amount reported by the insurance entity to the policyholder as the cash surrender value.
  2. b
    Multiple individual-life policies. Many entities purchase separate individual-life policies for each employee. Similar to the individual-life policy, each policy has only one contract value component and in some cases a surrender charge. If one or more, but not all, policies are surrendered, the policyholder will incur the surrender charges on those policies surrendered. This will result in a permanent loss of asset value to the extent of the surrender charge. However, a rider (or a contractual stipulation) can be obtained for the insurance policy that will waive the surrender charges on each individual policy if all of the policies are surrendered at the same time. The cost of the rider will vary depending on the individual facts and circumstances.
  3. c
    Group-life policy. The group-life policy constitutes the legal contract with the insurance entity that covers individual-life insurance for multiple employees. Each individual in the group policy is issued a certificate. If the group policy is cancelled, each of the individual certificates is terminated. While certificates are issued pursuant to the policy and form part of the policy, the group-life policy contract is the controlling document. Under the group-life policy, individual-life insurance certificates can be surrendered separately and the cash surrender value for the certificate is received by the policyholder for the full surrender amount of that certificate.
","snippet":"There are a few basic structures currently used as a framework for most policies in the marketplace. However, these structures can be combined and modified in many different ways and, therefore, can be quite complex. All…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0ed7a932425c9117863244ac119948961d13bfa12be5db54fea7bd56e6e700d4","downloaded_from":"2026-09-09T23:43:57.769Z","last_downloaded_at":"2026-09-09T23:43:57.769Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481477","source_sha256":"f4c20246e664e9dbc486de57a0a986494ff44aee26284a4a710273308bcbae16"}},{"citation":"325-30-05-8","para":"05-8","html":"
Additionally, a number of policies include certain provisions that can make them more attractive to the policyholder (for example, a provision allowing for the recovery of certain costs). However, many provisions limit the amount that is realized and may necessitate the meeting of certain criteria to recover any of those amounts. Some of the more typical examples of limitations that exist include all of the following:
  1. a
    The prohibition against having a change of control or a restructuring occurring within the last 24 months
  2. b
    A planned restructuring within the next 12 months
  3. c
    The extent to which the policyholder is in a net operating loss carryforward position.
The amount associated with the termination of the policy may be received over an extended period of time after the surrender of the life insurance policy or certificate.
","snippet":"Additionally, a number of policies include certain provisions that can make them more attractive to the policyholder (for example, a provision allowing for the recovery of certain costs). However, many provisions limit t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:755fa51c90c5d140917256abe1fd07efbaa81dd0c7a9a72083bc742759c304a2","downloaded_from":"2026-09-09T23:43:57.769Z","last_downloaded_at":"2026-09-09T23:43:57.769Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481477","source_sha256":"f4c20246e664e9dbc486de57a0a986494ff44aee26284a4a710273308bcbae16"}},{"citation":"325-30-05-9","para":"05-9","html":"
Other attributes include any of the following:
  1. a
    Multiple individual policies with a separate, group-level rider agreement
  2. b
    Multiple individual policies with a contractual stipulation in each individual policy referencing the other policies as a group
  3. c
    A group-life policy that has multiple certificates (individual life insurance for multiple employees).
These contracts may provide the policyholder with an amount that upon surrender is greater if all individual policies are surrendered at the same time rather than if the individual policies are surrendered over a period of time. The amount that can be realized under the insurance contract (that is, converted into cash) is dependent on how the contract is assumed to be hypothetically settled and, if surrendered, whether the insurance policies are surrendered at the individual or group level.
","snippet":"Other attributes include any of the following:\n(a) Multiple individual policies with a separate, group-level rider agreement\n(b) Multiple individual policies with a contractual stipulation in each individual policy refer…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ab3ed9855634d0b4985ae68bd141d786c8b8458c0652d79ce5dfe3fd4450091f","downloaded_from":"2026-09-09T23:43:57.769Z","last_downloaded_at":"2026-09-09T23:43:57.769Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481477","source_sha256":"f4c20246e664e9dbc486de57a0a986494ff44aee26284a4a710273308bcbae16"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0ede7e2bd75d927b4b57ac779b478d5f2161bd57056dcd6904ea6d08b15a23d1","downloaded_from":"2026-09-09T23:43:57.769Z","last_downloaded_at":"2026-09-09T23:43:57.769Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481477","source_sha256":"f4c20246e664e9dbc486de57a0a986494ff44aee26284a4a710273308bcbae16"}},{"block":null,"heading":"Exchange of Mutual Membership Interests for Stock in a Demutualization","paragraphs":[{"citation":"325-30-05-9A","para":"05-9A","html":"
To effect a demutualization, an entity may be required to issue consideration, often in the form of stock, to existing participating policyholders in exchange for their current membership interests. The receipt of such stock has no direct effect on the policyholders' contractual interests of their insurance policies (for example, it does not alter the cash surrender value of their life insurance policies). However, the governance of the mutual insurance entity and, in particular, the participating policyholders' interest in that governance are modified.
","snippet":"To effect a demutualization, an entity may be required to issue consideration, often in the form of stock, to existing participating policyholders in exchange for their current membership interests. The receipt of such s…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6f2cb03955e81ba68a200dfe606725d161f96ef60fb732dcff363dac01a96802","downloaded_from":"2026-09-09T23:43:57.769Z","last_downloaded_at":"2026-09-09T23:43:57.769Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481477","source_sha256":"f4c20246e664e9dbc486de57a0a986494ff44aee26284a4a710273308bcbae16"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d1bf70822a1b63dc4be11e276443c2eadd6b3d1eeb5540386595f9fb1818e438","downloaded_from":"2026-09-09T23:43:57.769Z","last_downloaded_at":"2026-09-09T23:43:57.769Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481477","source_sha256":"f4c20246e664e9dbc486de57a0a986494ff44aee26284a4a710273308bcbae16"}},{"block":"Life Settlement Contracts","heading":null,"paragraphs":[{"citation":"325-30-05-10","para":"05-10","html":"
The Life Settlement Contracts Subsections provide guidance on accounting for an investment in a life settlement contract.
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