How a 1035 Exchange Can Update an Annuity or Life Insurance Policy – ​​InsuranceNewsNet

By Lyle Boss

“Over the past 10 to 15 years there have been many improvements in life insurance and annuity products. If you are considering exchanging your current annuity or insurance policy for a new policy, a 1035 exchange might be a good solution.” —Lyle Boss

Created by an IRS code provision, 1035 exchanges offer a tax-deferred method of converting existing life insurance or annuity contracts into contracts that better match your overall financial goals. Under Rules 1035, policyholders can transfer money from an endowment, annuity, or life insurance to a new policy without paying taxes at the time of the transfer.

If you have a life insurance policy or annuity that you want to upgrade to a better designed product, you may want to consider the benefits of a 1035 exchange.

Make a 1035 trade to defer the gain

In a 1035 exchange, you defer the gain, which is the difference between the cash value of the policy at any time, including all policy loans, and the premium tax base, which is the amount put into contract, less premiums for additional charges. profits and less non-taxable distributions. If there is no gain in the original contract, you can still take advantage of other 1035 exchange tax benefits. If you redeem the original contract, these tax benefits are not available to you.

What types of trades can you make? There are different types of 1035 exchanges. These include:

* Life insurance for a non-qualified annuity contract.

* Life insurance for an endowment.

* Life insurance for life insurance.

* Endowment for an annuity product not eligible.

* Non-qualified annuity for non-qualified annuity.

When might a 1035 exchange be appropriate?

Make sure your advisor tells you all the pros and cons of this type of transaction and lets you be the sole decision maker. The decision to replace a policy should be justifiable based on your economic or personal needs, and you should never cancel a policy before your new policy is issued.

Some things you should consider are:

* If you may have any changes in your medical condition that may cause you to be refused new coverage or require you to pay more for coverage.

* Redemption fees could have a negative impact.

* Potential differences in how interest is credited to your replacement policy.

* Modifications of the provisions of policies and guarantees.

* Alternatives to replacement that you may not have considered.

* The impact of outstandings could represent a partial gain.

* The current financial climate.

* Your own goals and desires.

Changes in the stock market and interest rates, better-designed contracts and policies, and changing personal or financial needs are all reasons to speak with your financial expert to find out whether or not a 1035 swap makes sense. .

However, before you begin the trading process, you need to research all of your options, understand the potential pitfalls, and know the long-term implications.

Lyle Boss, originally from Utah, is a member of Syndicated Columnists, a national organization committed to a fully transparent approach to money management. Boss Financial, 955 Chambers St., Suite 250, Ogden, UT 84403. Phone: 801-475-9400.


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