What is Fair Market Valuation?
The Fair Market Valuation (FMV) of a life insurance policy can be used for the purposes of valuing policies transferred to a corporation prior to March 22, 2016, for valuing a corporation’s shares, for divorce calculations for marital property, for transfers from corporately owned to personal, for US Citizens owning Canadian policies residing in Canada and vice versa, and for charitable giving.
GBL is a recognized leader in FMV.
Is your client a good candidate for FMV?
An actuarial calculation and certification is recommended to determine the FMV on your client’s life insurance policy in the following situations:
What factors impact FMV?
Typically, the value of a life insurance policy is based upon a very simple process: term policies are held to have no value, and permanent policies are said to be worth the cash surrender value (CSV) of the policy. However, where determining a full actuarial value, the FMV method is used. Canada Revenue Agency defines FMV in CRA Information Circular 89-3: “FMV is defined as the highest price obtainable in an open and unrestricted market between knowledgeable informed and prudent parties acting at arms-length, neither party being under any compulsion to transact.”
A number of variables can give rise to a FMV being considerably higher than the CSV, for instance, the health of the insured. If the individual has suffered a deterioration of health that would give rise to a rating or result in the life insured becoming uninsurable, then the FMV could be closer to the death benefit. Other variables impacting the FMV include conversion provisions and changes in the current pricing of a similar policy.