L&HPennsylvaniamedium
A PA producer arranges an annuity-to-annuity 1035 exchange for a client. Which PA rule chapter applies to the transaction even though it is tax-free under IRC § 1035?
A31 Pa. Code Ch. 89 (Medigap) — applies to all senior insurance products, including annuities sold to seniors
BNo PA rule applies; IRC § 1035 preempts all state replacement and disclosure regulations entirely
31 Pa. Code Ch. 81 (Replacement) — the 1035 exchange is a replacement
D31 Pa. Code Ch. 83 (Illustrations)
Why this is the answer
IRC § 1035 governs only the federal tax treatment of the exchange. Pennsylvania's replacement regulation, 31 Pa. Code Ch. 81, still applies to the suitability, disclosure, conservation period and free-look elements. The producer must complete the Disclosure Statement, notify the existing insurer within 5 working days, and the consumer gets the 20-day replacement free-look.
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