L&HNationalmedium
Under IRC §1035, which of the following exchanges qualifies as a tax-free exchange of insurance contracts?
AAn existing annuity contract exchanged for a new permanent life insurance policy on the same insured's life
BA non-qualified annuity contract exchanged directly for a Roth IRA held at the same custodian
CAn existing life insurance policy exchanged for an individual disability income protection policy
An existing life insurance policy exchanged for a new non-qualified deferred annuity contract
Why this is the answer
IRC §1035(a) sets out a one-way 'descending' ladder of permissible tax-free exchanges. A life insurance policy may be exchanged tax-free for another life policy, an endowment, an annuity, or a qualified LTC contract. An annuity may be exchanged for another annuity or qualified LTC but not 'back up' the ladder to a life policy, because annuities have no mortality element to preserve. Disability income contracts and IRAs are not §1035 property at all.
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