# ASC 325-30-05: Investments—Other — Investments in Insurance Contracts — 05 Overview and Background Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/325/30/#05-overview-and-background) 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. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-09T23:43:57.769Z to 2026-09-09T23:43:57.769Z Record version: sha256:c3a3a50f8446bfb1ba9f73cef195b98a2d1bced2d454d7eb6b2ffc7a24eff651 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 325-30-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/325/30/#05-overview-and-background) SEC content: no ##### [325-30-05-1](https://asc.understandingaccounting.org/asc/325/30/#325-30-05-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:43:57.769Z to 2026-09-09T23:43:57.769Z Record version: sha256:4ad7984474e37d0f0395d7dfcf9f0aa4ebcf835f5ded1535b497b93a0892e5e8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic presents guidance in the following Subsections: 1. a General 2. b Life Settlement Contracts. ##### [325-30-05-2](https://asc.understandingaccounting.org/asc/325/30/#325-30-05-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:43:57.769Z to 2026-09-09T23:43:57.769Z Record version: sha256:a47e3dfa4694821a26fb18082e9c9ceb2d2baeff2fabddbddca2f1ea7201e424 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [325-30-05-3](https://asc.understandingaccounting.org/asc/325/30/#325-30-05-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:43:57.769Z to 2026-09-09T23:43:57.769Z Record version: sha256:66121326460ba54c0171a10897bef61d623a9fdb25cb8f6c57fa5be45b6296fc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [325-30-05-4](https://asc.understandingaccounting.org/asc/325/30/#325-30-05-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:43:57.769Z to 2026-09-09T23:43:57.769Z Record version: sha256:cade0ca69ee03c06e09ee58492df41da439cbe24fd64821da445f4d07165b2b9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [325-30-05-5](https://asc.understandingaccounting.org/asc/325/30/#325-30-05-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:43:57.769Z to 2026-09-09T23:43:57.769Z Record version: sha256:9627aa174e1f5a2344d261d87887f4a0aee98a80ea083cc175e1551384a133a5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [325-30-05-6](https://asc.understandingaccounting.org/asc/325/30/#325-30-05-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:43:57.769Z to 2026-09-09T23:43:57.769Z Record version: sha256:e916e4413e61a5a1bb5846c30e0f8f193155b067f3362246dc5369d409d7167d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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](https://asc.understandingaccounting.org/glossary/i/#insurance-policy "The legal agreement between the policyholder and the insurance entity that states the terms of the arrangement. The term insurance policy includes all riders, attachments, side agreements, and other related documents that are either directly or indirectly part of the contractual arrangement. (Note: The use of this glossary term is not consistent among legal contracts. When determining the applicability of this term, the economic substance of the item shall be taken into consideration.)") 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](https://asc.understandingaccounting.org/glossary/c/#cash-surrender-value "The amount of cash that may be realized by the owner of a life insurance contract or annuity contract upon discontinuance and surrender of the contract before its maturity. The cash surrender value may be different from the policy account balance due to outstanding loans (including accrued interest) and surrender charges. (Note: The use of this glossary term is not consistent among legal contracts. When determining the applicability of this term, the economic substance of the item shall be taken into consideration.)"). 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. ##### [325-30-05-7](https://asc.understandingaccounting.org/asc/325/30/#325-30-05-7) Pending content: no Source downloaded (UTC): 2026-09-09T23:43:57.769Z to 2026-09-09T23:43:57.769Z Record version: sha256:0ed7a932425c9117863244ac119948961d13bfa12be5db54fea7bd56e6e700d4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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](https://asc.understandingaccounting.org/glossary/s/#surrender-charge "A contractual fee imposed by the insurance entity when a policyholder surrenders the insurance policy that typically decreases over the life of the policy. The surrender charge represents a recovery of costs incurred by the insurance entity in originating the policy. It may or may not be explicitly called a surrender charge and can be embedded in other agreements besides the insurance contract. (Note: The use of this glossary term is not consistent among legal contracts. When determining the applicability of this term, the economic substance of the item shall be taken into consideration.)"). 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](https://asc.understandingaccounting.org/glossary/c/#certificates "An insurance entity issues to each individual in a group contract a certificate of insurance for each person insured under the group contract. The certificate is merely a summary of the rights, duties, and benefits available under a group policy. If there is any conflict between the certificate and a group policy, the group policy is the controlling document. (Note: The use of this glossary term is not consistent among legal contracts. When determining the applicability of this term, the economic substance of the item shall be taken into consideration.)") 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. ##### [325-30-05-8](https://asc.understandingaccounting.org/asc/325/30/#325-30-05-8) Pending content: no Source downloaded (UTC): 2026-09-09T23:43:57.769Z to 2026-09-09T23:43:57.769Z Record version: sha256:755fa51c90c5d140917256abe1fd07efbaa81dd0c7a9a72083bc742759c304a2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [325-30-05-9](https://asc.understandingaccounting.org/asc/325/30/#325-30-05-9) Pending content: no Source downloaded (UTC): 2026-09-09T23:43:57.769Z to 2026-09-09T23:43:57.769Z Record version: sha256:ab3ed9855634d0b4985ae68bd141d786c8b8458c0652d79ce5dfe3fd4450091f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. #### Exchange of Mutual Membership Interests for Stock in a Demutualization ##### [325-30-05-9A](https://asc.understandingaccounting.org/asc/325/30/#325-30-05-9A) Pending content: no Source downloaded (UTC): 2026-09-09T23:43:57.769Z to 2026-09-09T23:43:57.769Z Record version: sha256:6f2cb03955e81ba68a200dfe606725d161f96ef60fb732dcff363dac01a96802 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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](https://asc.understandingaccounting.org/glossary/c/#cash-surrender-value "The amount of cash that may be realized by the owner of a life insurance contract or annuity contract upon discontinuance and surrender of the contract before its maturity. The cash surrender value may be different from the policy account balance due to outstanding loans (including accrued interest) and surrender charges. (Note: The use of this glossary term is not consistent among legal contracts. When determining the applicability of this term, the economic substance of the item shall be taken into consideration.)") 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. ### Life Settlement Contracts ##### [325-30-05-10](https://asc.understandingaccounting.org/asc/325/30/#325-30-05-10) Pending content: no Source downloaded (UTC): 2026-09-09T23:43:57.769Z to 2026-09-09T23:43:57.769Z Record version: sha256:cfadaae04c28f634ce069ba4021ae7a32984ef6d66b0445edaddfe034d6bb642 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The Life Settlement Contracts Subsections provide guidance on accounting for an investment in a [life settlement contract](https://asc.understandingaccounting.org/glossary/l/#life-settlement-contract "A life settlement contract is a contract between the owner of a life insurance policy (the policy owner) and a third-party investor (investor), and has all of the following characteristics: The investor does not have an insurable interest (an interest in the survival of the insured, which is required to support the issuance of an insurance policy). The investor provides consideration to the policy owner of an amount in excess of the current cash surrender value of the life insurance policy. The contract pays the face value of the life insurance policy to an investor when the insured dies.").