Life · Chapter 6 · Taxation
Section 1035 Exchange
Definition
A tax-free, insurer-to-insurer exchange of like-kind contracts — the owner never takes constructive receipt of the cash, and the old contract's cost basis carries over. Allowed: life → life, endowment, annuity, or qualified LTC; endowment → endowment, annuity, or qualified LTC; annuity → annuity or qualified LTC; LTC → LTC.
Exam tip
1035 only moves "downhill" — an annuity can NEVER be exchanged for life insurance, because that would upgrade tax-deferred money into a tax-free death benefit. ⚠️ There is no 60-day rule in §1035 — that's the IRA-rollover window. The exchange must be insurer-to-insurer.
Easy to confuse with
These are what this term gets tested against — if you can't tell them apart cold, drill the contrast.
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