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What is a Section 1035 policy exchange?

By Jakob Jelling
www.cashbazar.com

Don't lose insurance money when you change policies.

If you are starting out with term life insurance, eventually that term will end. At that point, you'll need to either extend the length of your life insurance policy, switch to another policy, or cash out the money that you paid into the life insurance policy over the time that you had it. Now, if you cash out the policy, then you're likely to have a few problems with taxes. This is due to the fact that when you cash out the policy, it is like you are earning several thousand dollars. Therefore, you'll be taxed.

There are ways that you can avoid these taxes, and one of them is the Section 1035 policy exchange. This policy exchange is a way to exchange one life insurance policy for another. This essentially lets you roll the money from one life insurance policy over into another one. You should be careful doing this, however, as there are a few things that can go wrong if you are not careful about how you set up this exchange.

One thing that you should think about with the Section 1035 policy exchange is that there are a few different uses for this exchange. The most common use of the Section 1035 is to switch policies after one of your term life insurance policies has come to an end. After all, you wouldn't want to pay the taxes on that life insurance policy - and then have less to put into your next policy.

You can also switch from one insurer to another. There are several reasons to do this, and you should definitely consider it if you do not feel like you can trust your old insurance company anymore.

The biggest advantage of the Section 1035 policy exchange is not actually the ability to skip out on taxes - although that is admittedly a pretty big advantage. Instead, the biggest advantage is that you'll already have a lot of money paid on your new life insurance policy as well. This means that you do not have to start from the beginning - and it will take less time for the policy to build up to a level that will actually protect your family.

About the author
Jakob Jelling is the founder of http://www.cashbazar.com. Visit his website for the latest on personal finance, debt elimination, budgeting, credit cards and real estate.

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