Life insurance valuation is the process of determining the economic or fair market value of a life insurance policy for purposes such as gift and estate tax reporting, business transactions, divorce settlements, policy sales, or financial statements. Valuation methods vary depending on context and may involve interpolated terminal reserve and unearned premium calculations, policy replacement cost, cash surrender value, or more sophisticated actuarial approaches that consider projected premiums, death benefits, and discount rates. For tax purposes, IRS guidance like Revenue Ruling 59-60 and specific life insurance regulations influence acceptable methods. Accurate valuation is critical to avoid underreporting or over reporting values in transactions affecting tax or legal rights.

In practice, advisors encounter life insurance valuation when clients are transferring policies to trusts, selling policies between related parties, contributing policies to charities, or unwinding business arrangements. Estate planning attorneys and CPAs may request policy values as of specific dates for Form 706 reporting, or require third party appraisal support for large or complex policies. In life settlement scenarios, valuation informs whether a policy might have market value above surrender value. Advisors typically work with carriers, actuaries, or specialized valuation firms to obtain appropriate numbers and documentation. They also explain to clients why cash surrender value alone is not always the correct measure. By understanding life insurance valuation principles and when expert help is needed, producers can guide clients through transactions confidently and help their professional partners comply with tax and regulatory expectations.