Federal Tax Considerations for Life Insurance and Annuities
Why must a section 1035 exchange be carried out between the two insurers rather than by the owner?
Answer and explanation
Answer: B. Receipt of the money turns the transaction into a surrender followed by a purchase, and the gain becomes taxable, so the funds must pass directly from one insurer to the other. The rule is about who touches the proceeds, not about valuation or the sequence of issue.Source: 26 U.S.C. § 1035 — 26 U.S.C. § 1035
More federal tax considerations for life insurance and annuities questions
- How are policy loans from a life insurance contract that is not a modified endowment contract generally treated for income tax?
- How does classification as a modified endowment contract change the taxation of cash value increases taken out?
- How is the interest an individual pays on personal policy loans generally treated?
- On what basis are dividends paid under a participating whole life policy?
- What is the tax effect of a properly executed section 1035 exchange?
- When a permanent policy is surrendered for cash, how is the taxable portion of the surrender proceeds calculated?
621 New York questions like this one.
Every answer explained, the ones you miss come back on a spaced schedule, and a plan built from your exam date.