Section 1035 Exchanges

Overview

Understanding Section 1035 is an essential part of the insurance producer’s responsibility to the client, because it offers flexibility and planning opportunities for insurance and annuity owners. However, Section 1035 rules are strict, and precise steps and procedures must be followed. Failure to properly transact a life insurance or annuity exchange in accordance with the rules of Section 1035 can have unexpected, and unnecessary, tax consequences for the contract owner, with obvious repercussions for the producer.

The purpose of this course is to provide a thorough presentation of IRC Section 1035 and an understanding of how life insurance, annuity, and long-term care contracts may be exchanged on a tax-free basis. In addition, the course covers the important issue of suitability of policy exchanges as product replacements within the framework of NAIC model laws and regulations, state laws, and proper market conduct.

Learning Objectives

Upon completion of this course, students will be able to:

  • understand the meaning and significance of a Section 1035 exchange, especially from an income tax perspective
  • know the three basic conditions that must be met for a policy replacement to qualify for Section 1035 tax treatment, including the financial products that qualify for Section 1035 exchange treatment and the 1035 exchange process
  • be able to guide clients successfully through the Section 1035 exchange process in all situations calling for the full or partial replacement of an insurance contract

Designed For

Licensed life/health insurance producers; financial planners and advisors
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