The interpolated terminal reserve value is usually equal to or slightly larger than the cash value of the policy. The life insurance company must make this calculation for you, although the cash value is a good estimate. The company provides this value by completing IRS form 712. The IRS form 712 is attached to the Estate (IRS form 706) or to the Gift (IRS form 709) Tax Return. 

 

When someone receives a policy or when someone dies and owns a life insurance policy on another person's life, it is necessary to know the value of that policy for gift and/or estate tax purposes. The value is NOT the cash value, but the cost of replacement. Replacement cost is the cost of buying another similar policy from the same insurer. Thus, only the insurance company can determine the cost. If the policy has been in force for some time and there are future premiums to be paid, the value may be approximated by adding the interpolated terminal reserve to the unapplied premiums.

 

 

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