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1035 question builder

Questions to ask before considering a 1035 exchange or other policy replacement.

Last reviewed: .

By Marian Tlatelpa Ruiz, licensed insurance producer.

A 1035 exchange can move value from one qualifying insurance contract to another without immediate gain recognition when the rules are satisfied.

That sentence is not a recommendation.

Use this question builder before discussing a 1035 exchange or any policy replacement. The goal is to force both the current policy and proposed policy onto the same page.

If a replacement is already under discussion, the service path starts at review coverage.

Current Policy Facts

Ask:

  1. What is the current cash value?
  2. What is the current surrender value?
  3. What is the cost basis?
  4. Is there a loan balance?
  5. What surrender charges apply today?
  6. What riders would be lost?
  7. What guarantees would be lost?
  8. What premium is required to keep the policy in force?

Proposed Policy Facts

Ask:

  1. What new premium is required?
  2. What new surrender period starts?
  3. What underwriting is required?
  4. What guarantees are stronger?
  5. What guarantees are weaker?
  6. Which illustrated values are non-guaranteed?
  7. What fees or charges apply in years 1, 3, 5, and 10?
  8. What happens if the non-guaranteed assumptions are reduced?

Tax And Loan Questions

Ask:

  1. Does the transaction qualify under Section 1035?
  2. Will the transfer be direct from carrier to carrier?
  3. How is cost basis handled?
  4. How is any loan handled?
  5. Could the loan create taxable income?
  6. Does the proposed policy create MEC or seven-pay questions?
  7. Which tax professional has reviewed the transaction?

Compensation Questions

Ask:

  1. How are you paid if I complete this exchange or replacement?
  2. What first-year compensation is tied to the proposed policy?
  3. Do you receive renewal compensation?
  4. Would your compensation change if I kept the current policy?
  5. Would your compensation change if I reduced the proposed premium?
  6. Can you put the compensation answer in writing?

Copyable Question List

Copy this into the next email:

Please compare the current policy and proposed policy side by side. Include current cash value, current surrender value, cost basis, loan balance, surrender charges, riders lost, guarantees lost, new surrender period, new premium, underwriting requirements, guaranteed values, non-guaranteed values, tax treatment, loan treatment, MEC review, and compensation.

Agent Summary

This tool structures pre-review questions for a possible 1035 exchange or replacement. It does not decide whether an exchange is appropriate and does not produce a replacement recommendation.

Limits

No state-specific replacement guidance. No tax conclusion. No recommendation. Any future side-by-side comparison must show surrender charges, cost basis treatment, and the dollar impact of the swap.

Related reading: When no product is the right answer.

Source Notes