101640 – Financial Accounts: Cash Value Insurance Contract

A Cash Value Insurance Contract is an investment product that has an element of life insurance attached to it. The life insurance part is often small compared to the investment element of the contract. General insurance products, such as term life insurance, property or motor insurance, that do not carry any investment element are not financial accounts.

A Cash Value Insurance Contract is an insurance contract where the policyholder is entitled to receive payment on surrender or termination of the contract. Examples of the type of insurance product that will be cash value insurance products and those that will notcanbe found at AEIM101660.

The cash value of such a contract is the greater of:

  1. The amount that the policyholder is entitled to receiveonthe surrender or termination of the contract without reduction for any surrender charge or loans outstanding against the policy, for example, where the policyholder receives an annual statement of the value of the policy that will be the cash value in that year, and
  2. The amount the policyholder can borrow against or concerning the policy. Note that the policyholder does not need to have pledged the account as collateral for borrowing for this second test to apply. It is the amount that the policyholder could expect to borrow against the Cash Value Insurance Contract should they choose to use it as collateral for a loan.

The cash value does not include any amount payable under an insurance contract:

a) Solely by reason of the death of an individual insured under a life insurance contract;

b) As a personal injury, sickness or other benefit providing indemnification of an economic loss arising from an event that has been insured against;

c) As a refund of premium due to the cancellation or termination of an insurance contract, a reduction in the amount insured or a correction of a posting or similar error in relation to the premium

d)  As a policyholder dividend, other than a termination dividend, provided that the insurance contract pays only the benefits in b) above. A policyholder dividend is the return of premium, under the terms of the policy, resulting from an excess of income over losses and expenses.

e) As a return of an advance premium or premium deposit for an insurance contract where the premium is payable at least annually. In this case the advance premium or premium deposit must not exceed the amount due as the next annual premium payable under the contract.