Recognition of Life Insurance (Endowment Policy)

[h0ngk1]

Hi, I have a query here. The entity is having an investment in life insurance (Endowment policy). The term of the insurance is 10 years and the entity has to pay an annual premium.
The life assured is a senior management personnel and the beneficiary is the entity. The entity can choose to surrender the insurance but the amount returned will be very minimal in the first few years. The management has assured that they do not have the intention to surrender and will wait for maturity of the life insurance. The entity will be able to get back the capital plus interests at maturity. I need to know how to recognise this life insurance and its measurement. Thanks a lot

 

[kirby]

Ask the management to request from the insurance company a statement of the insurance value and earnings. Just as this is something you need it is a common request and most insurance companies provide this - i have even seen some provide the related monthly accounting entries

 

[bklynboy]

You record an asset for the cash surrender value of the life insurance. Generally the amount is low in the first few years as insurers have steep surrender charges to compensate them for the large commission they pay to issue the policy. Cash value will increase over time but cannot be reflected until credited despite managements intent to hold to maturity.

Note that each year a premium is paid you record the premium as an expense net of the annual change in cash value build up.

See ASC 325 for US GAAP accounting rules.