Valuing an Insurance Policy

[BG5150]

I got this annual statement for an insurance policy in a plan of mine, but I'm not sure how to value it.

Open Value: 625,000

YTD Policy Change: -20,000

Total Policy Value: 605,000

Loan Principal: 570,000

Loan Interest: 14,000

Total Indebtedness: 584,000

Surrender Charge: 110,000

Net Surrender Value: -89,000

I would think the net surrender value is my number. But it is negative because of the loan. Do I ignore that in the calculation? That is just use Policy Value - Surrender?

And what really has me concerned is the half million dollar "loan"

Any thoughts or suggestions?

[RatherBeGolfing]

Is the policy an investment of the principal with the loan only, or is this an "investment" for other participants?

[My 2 cents]

What kind of plan is this, defined benefit or defined contribution? To whom was the loan made, the plan or a party-in-interest? I was under the impression that loans to plan participants are supposed to be limited to 50% of the value of the account or $50,000, whichever is less. Is this not so?

First suggestion is to obtain, in writing, clear details concerning this.

Second suggestion is to find out what it means to have a negative net surrender value. Does that mean that one must come up with $89,000 in order to surrender the policy?

What kind of insurance policy has a surrender charge of more than $100,000? How can that be justified?

Was anyone even pretending to be acting in a fiduciary capacity with respect to the selection or maintenance of this "investment"?

[BG5150]

DC Plan.

One insured.

Death Benefit a/o 1/1/15 was 3.6 million.

I'm not sure who the loan was made out to.

So we agree this has a potential to be a cluster-fudge.

[Bird]

I'd first consider the possibility that it's simply an error. I guess it is possible to have some kind of theoretical negative CSV but it's also possible their computer wasn't programmed to handle that specific situation.

The loan could arise as an automatic premium loan, where the premium is paid by borrowing from the plan itself. I hope that the money didn't go out somewhere else and you don't know about that.

Definitely get all details. Start with the agent; make him earn the (probably) $50K to $100K commissions.

[My 2 cents]

I'd first consider the possibility that it's simply an error. I guess it is possible to have some kind of theoretical negative CSV but it's also possible their computer wasn't programmed to handle that specific situation.

The loan could arise as an automatic premium loan, where the premium is paid by borrowing from the plan itself. I hope that the money didn't go out somewhere else and you don't know about that.

Definitely get all details. Start with the agent; make him earn the (probably) $50K to $100K commissions.

Or at least some of them!