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What is a 1035 exchange?

What is a 1035 Exchange? A 1035 exchange allows you to ?trade? or replace your life insurance policy. Be very careful. Get several opinions before you either replace or ?trade? one policy for another. According to US tax code, you can make a tax-free exchange from one life insurance policy to another life insurance policy or from one life insurance policy to an annuity. You cannot exchange an annuity for a life insurance policy. The three reasons to consider a 1035 exchange are improved health, concerns about the solvency of the insurance company behind your current policy, or a new policy has more desirable features or benefits. The reasons NOT to consider a 1035 exchange include, early surrender charges, higher premiums on a new policy, unfavorable tax consequences (tax on outstanding policy loans), and new commissions that affect cash value. Finally, make sure the exchange benefits you and not the agent selling you the policy.