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An insurance business has value if its cost of float over time is less than the cost the company would otherwise incur to obtain funds. But the business is a lemon if its cost of float is higher than market rates for money.. Buffett also touches on what makes valuing an insurance company difficult.nsurance Valuation Insight. A couple of key metrics can be used to value insurance companies, and these metrics happen to be common to financial firms in general. These are price to book (P/B) and return on equity (ROE).
The other part adds to the cash value. If you buy a permanent life insurance policy when you're still young, the majority of your premium payment will go toward the cash value. As you get older, more and more of your premium will start going toward the benefit value. In a whole life policy â a kind of permanent life insurance â your premiums don't increase. This means that the cash value grows more slowly as you get older. As your cash value builds, you can draw money from it. This is usually done in the form of a loan against the policy's cash value. You can also withdraw money under some circumstances â but this may reduce the benefit value of the policy. The cash value in your policy draws interest â usually about 6% a year.