Internal Revenue Code Section 1035 Tax Free Exchanges

A “ten thirty-five exchange” or “1035 exchange” is a tax-free exchange of:

1. An existing life insurance policy for a new life insurance policy, or
2. An existing life insurance policy for a new annuity policy, or
3. An existing annuity policy for a new annuity policy.

Section 1035 of the Internal Revenue Code (IRC) regulates this type of exchange, hence the name of this website.

A key requirement of a 1035 Exchange is that the owner not be in constructive receipt of the surrendered policy value. In cases where the old and new carriers are different companies, this is generally accomplished by the owner assigning the policy to the new carrier, which takes delivery of the surrendered policy value and applies it to the new policy.

Why would you want to exchange an old policy for a new policy? There are many reasons, some of which are explained on the next page: Why?

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