Life Insurance Basics
What is a life insurance 1035 exchange?
A 1035 exchange allows you to exchange one life insurance policy for another (or an annuity) without paying taxes on the gain. The exchange must be done directly between insurance companies — you cannot receive the funds. A 1035 exchange is useful when you want to upgrade to a better policy without triggering a taxable event.
Key Points
- 1035 exchange: exchange one policy for another without paying taxes on the gain
- Exchange must be done directly between insurance companies
- Can exchange life insurance for life insurance or annuity
- Cannot receive the funds — must be a direct transfer
- An independent agent can help you execute a 1035 exchange