The specifics of the policy are as I described....and we have read the fine print...
Ok, but has that led to any curiosity of why the deal is so generous? Did your mother work for this insurance company? Own it? Receive the policy as an unusual form of payment for something?
You're saying that 8 years ago, the insurance company made a bet that #1) your mother would live at least another 16 years, and #2) they could achieve an annualized 10% return on your money. If either of those things end up being untrue, they lose. Given that the SSA thinks a 77-year-old woman has only 11.5 more years to live, this sounds like a crazy bet on their part.
and the current buyout offer of $180,000...though indeed a $26,000 loss... is quite a bit higher than I or anyone else familiarized with the policy anticipated...
Really? I'd actually say that's quite low compared with the generosity of the original deal. $26,000 invested annually in the S&P500 over the last 8 years would actually be ~$330,000 right now. They're offering to give you a little more than half of that. Not only is the cheapness of their $180,000 offer at odds with the extreme generosity of their $900,000 offer, it's also not a very good incentive for you to take the offer. If anything, I would expect them to say "ok, we totally fucked up with that $900,000 offer. So we'll offer you $300,000 now. We'll still lose a bit of money (because we didn't actually invest your contributions in something as risky as the S&P 500), but that controlled loss is worth it to us to get out of this bad deal since it's a lot less than we're likely to lose if we have to pay out $900,000 instead in the next couple years."
Anyway, yeah, unless you know that your mother has discovered the secret to immortality, taking the current deal doesn't make much sense.