YOU ASK:

What is the definition of Section 1035 Exchange?

WE ANSWER:

A Section 1035 Exchange refers to the exchange of an existing insurance policy or annuity into a new one. This is a tax-free transaction and should involve the same insured person. The "new" contract should also be equivalent to the "old" contract being terminated.

This is based on Section 1035 of the Internal Revenue Service Code. This means immediately reinvesting the proceeds of an annuity or insurance policy into another one that has the same value and the same terms. Section 1035 requires that for this to be tax-free, it should be facilitated and managed by the seller of the new annuity or life insurance policy.

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