Do You Own Life Insurance Policies and Annuities That You No Longer Need?

Over time, as your individual and family circumstances change, you may find that you own an annuity or cash value life insurance policy that no longer suits your needs.

If you have such holdings within your portfolio, there are attractive ways to repurpose such assets where they again can play a role in your overall financial plan such as for long-term care insurance protection.

1035 Exchange

One way to accomplish the repurposing of such an asset is through a Section 1035 exchange. Section 1035 of the Tax Code allows for the replacement of an annuity or life insurance policy for a new one without incurring any tax consequence for the exchange. To qualify, the old policy and the new policy must be of the same type (i.e. annuity to an annuity, life insurance to life insurance, or life insurance to annuity), have the same owner, and have the same insured person.

Repurposing into Long-Term Care Insurance

Specifically, one popular way individuals can repurpose an annuity or cash value life policy that no longer plays a role in their portfolio is by completing a 1035 exchange directly into an “asset-based” insurance or annuity policy with a long-term care rider. This, in effect, will convert an “outdated-like” asset in your portfolio into an asset that is again playing a very valuable and important role in your overall financial plan in the form of long-term care insurance.

It should be cautioned that Section 1035 exchanges may not make sense in all situations and the protection and coverage provided by the current contract should be carefully weighed and considered prior to making any changes. In addition, a 1035 exchange involves a complex set of tax rules and regulations that also need to be considered.

If you feel that you may be able to take advantage of a 1035 exchange to improve your situation, please reach out to your financial advisor to answer any of your questions and help you determine if this strategy makes sense for your situation.

Donald D. Duncan Financial Advisor / Managing Director

Don focuses on high income and/or $1 million net worth clients. He earned an MBA from DePaul University and brings an evidence-based, risk management oriented, institutional perspective to investment management.