The Ins and Outs of the '1035 Exchange'

Under Section 1035 of the IRS code, certain insurance contracts may be exchanged for another without generating a tax consequence. This specifically applies to life insurance policies, which can be exchanged for another policy, annuity, or long-term care policy, as long as the owner and insured person remain the same.

When considering an exchange, Partner Bob Lickwar said to take into account updates some insurance companies have made to their life expectancy tables. Longer life expectancies “could result in lower annual premiums for the same amount of insurance, or a higher death benefit with the same premiums,” he said.

But most importantly, speak with a financial professional before making the exchange, as this can be a big decision. “A quality financial professional should educate and inform the client of all charges, fees, tax consequences, and other potential pitfalls,” Lickwar said. And, if there are any doubts, “consider obtaining a second opinion.”

Read the full article published by Financial Advisor Magazine.