A Gap in Insurance GAAP?
Department or Administrative Unit
There's a new philosophy in the marketplace about life insurance, and we believe it warrants a change in the accounting method used for this popular investment product. Traditionally, life insurance has been viewed as a legacy paid to designated beneficiaries after the insured's death. But in recent years policyholders have begun to view it as an underused asset, a source of significant financial resources they can tap while they are still living by selling their insurance to third parties. With the emergence of the multi-billion-dollar viatical and life settlement markets to facilitate these purchases, some accountants have begun to question the appropriateness of FASB Technical Bulletin no. 85-4, Accounting for Purchase of Life Insurance, that adopted the cash surrender method as the only generally accepted method of accounting for these assets. Many CPAs feel it fails to properly reflect the investment nature of life insurance purchases in these markets, resulting in financial reporting that lacks adequate transparency.
Thompson, J. & Larson, G. (2005). A gap in insurance GAAP? Journal of Accountancy, 199(March), 83-85.
Journal of Accountancy
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