The answer is option D, 1031 Exchange.
What is a Cash-value life insurance policy?
With a cash-value life insurance policy-
- A portion of each premium you pay is used to insure your life
- while the remainder is used to build up a cash value.
- The interest on the cash value portion of your policy is tax-deferred.
What is a 1031 exchange?
- If you decide to shift your real estate investment dollars at some point, you may want to consider a 1031 exchange.
- This type of exchange allows you to postpone paying capital gains tax on the sale of an investment property if the proceeds are used to purchase another similar property.
Can you make a 1031 exchange for life insurance?
- A 1031 exchange is an exchange of similar properties. For life insurance policies, a 1035 exchange works similarly.
- A policy owner may cash out an existing life insurance policy and use the cash value as the premium or a portion of the premium for a new life insurance policy under IRS Code 1035.
- A 1035 Exchange occurs when a client with a Whole Life Insurance policy uses the cash value within the policy to create a new permanent Life Insurance policy with better cash value development and access, as well as additional protection.
- If you surrender a life insurance policy for cash value, you risk losing the death benefit and may be subject to taxation. However, you can avoid this.
- A 1035 exchange is a provision in the Internal Revenue Service (IRS) code that allows individuals to exchange a tax-free existing annuity contract, life insurance policy, long-term care product, or endowment for another of a similar kind.
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