When a business owns a life insurance policy (BOLI) for a key officer, it pays the premiums itself and names the actual business as the beneficiary should the officer die while the policy is in place. These premiums are considered standard business expenses, with a debit to an insurance expense account and a credit to cash or a payable. There’s one additional facet of BOLI accounting to consider – the FASB has determined that the value of the policy on the financial statement date should be included as a balance sheet asset. That value refers to the cash surrender value, NOT the possible benefit paid should the officer die in the future.

If the cash surrender value changes during the year, the change will reduce or increase insurance expense for the year, as shown by the following journal entry. We’ll assume that XYZ Corporation, a fictional entity, pays $3,000 for a $10,000,000 CEO life insurance policy. The cash surrender value increased from $21,900 to $22,700 this year.

Now let’s assume that, unfortunately, the CEO does in fact die the very next year, and the corporation collects the $10,000,000 death benefit. The company will debit cash for that amount while eliminating the accumulated cash surrender value account. A gain will be booked for the difference – note that this might qualify as an extraordinary gain to be reported separately on the income statement.