Tax-Free Life Insurance Policy Exchanges

Also known as a 1035 exchange, a tax-free life insurance policy exchange involves the transfer of the cash value of one policy into another, permanent life insurance policy.  What should be obvious is that, once the cash-value transfer is made, the old policy is cancelled.

Why would you want to make this move?  Throughout my career, I have encountered a number of good reasons to do this:

1.  Because of a number of factors (discussed in previous articles), your old policy is projected to lapse.  So, instead of throwing good money after bad, you’ll want to invest those funds into a life insurance policy that will be around when your family needs it.

2.  Because of market efficiencies and increased longevity, life insurance costs have decreased over the last decade.  This means that your old life insurance policy simply costs more than a new one. You may also be able to get more life insurance protection by changing to a newer, less expensive life insurance policy.

3.  Your life and priorities have changed, and your old life insurance policy doesn’t fit your new needs.  For example, you’ve gotten older and have seriously thought about getting a long-term care policy.  Well, now you can get both: a no-lapse guarantee life insurance policy combined with a long-term care rider – all in one policy!  That may work very well for a number of consumers.

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