1035 Exchange
Stop Paying Premiums on a Life Insurance Policy You’ve Outgrown.
If you’re in or near retirement with a whole life policy, there’s a good chance you’re overpaying for coverage that could be working harder for you — whether that means preserving your death benefit for free, or converting your cash value into guaranteed income. Either way, a 1035 exchange does it completely tax-free. You don’t need to overthink it.
Begin a conversation →Two paths. One tax-free exchange.
Section 1035 lets you exchange a whole life policy into either a new life insurance policy or an annuity. Your goal determines the path.
Keep the coverage. Eliminate the premium.
Exchange the whole life policy into a Guaranteed Universal Life (GUL) or Indexed Universal Life (IUL) policy. The death benefit transfers intact; the future premium obligation disappears.
- Death benefit preserved for heirs and estate
- Future premiums eliminated entirely
- Tax-free transfer of accumulated cash value
Turn cash value into guaranteed income.
Exchange the whole life policy into an annuity — immediate, deferred, or income-focused. Accumulated cash value becomes an income stream the client cannot outlive.
- Guaranteed income stream
- Tax-free transfer — no income tax on gains
- Multiple annuity types: SPIA, DIA, deferred
Your whole life policy may be working against you in retirement.
If any of these resonate, a 1035 exchange may be the most consequential financial move available before or during retirement.
- i. You’re still paying premiums on a whole life policy you no longer need for savings.
- ii. The death benefit is locked inside a policy that costs thousands of dollars a year to maintain.
- iii. You want to protect heirs and estate — but not at the expense of your retirement income.
- iv. You’ve heard about 1035 exchanges, but don’t know whether you qualify or where to start.
Common questions.
What is a 1035 exchange?
A provision of the tax code — Section 1035 — that lets you replace one insurance contract with another without recognizing the built-up gain as taxable income. Done correctly, the old policy's value moves directly into the new contract, carrier to carrier; you never take receipt of the money.
What can be exchanged into what?
Life insurance can become life insurance or an annuity. An annuity can become another annuity. The road runs one way: an annuity cannot be exchanged back into life insurance. Long-term-care hybrid contracts are also eligible under current rules.
Is a 1035 exchange really tax-free?
The exchange itself does not trigger income tax — gains stay deferred and your cost basis carries over. Tax-free is not cost-free, though: the old contract may carry surrender charges, and the new one starts its own schedule. We put both on paper before recommending anything.
When does an exchange make sense?
When the old policy no longer fits: costs that newer contracts beat, performance that lagged, a death benefit you no longer need — or need more of — or health that has improved enough to qualify for better rates. Sometimes the right answer is keeping the policy you own; the analysis tells you which.
What are the catches?
Three big ones: a new surrender-charge schedule, a fresh two-year contestability period, and outstanding policy loans that can make an exchange partially taxable. All three are manageable — but only if they are identified before the paperwork, not after.
For a full policy review, visit 1035advisor.com.
1035advisor.com is the firm’s dedicated 1035 exchange platform. Upload an in-force whole life illustration; the platform extracts every data point, benchmarks the policy, and projects the outcome of either path. The exchange itself is then handled here, by Remain Life Insurance Services, LLC.
Or speak with a Remain advisor directly.