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J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return by J.K. Lasser Institute

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6.12 Tax-Free Exchanges of Insurance Policies

These exchanges of insurance policies are considered tax free:

  • Life insurance policy for another life insurance policy, endowment policy, or an annuity contract.
  • Life insurance policy, an endowment policy, or an annuity contract for a qualified long-term care policy
  • Endowment policy for another endowment policy that provides for regular payments beginning no later than the date payments would have started under the old policy, or in exchange for an annuity contract.
  • Annuity contract for another annuity contract with identical annuitants.

These exchanges are not tax free:

  • Endowment policy for a life insurance policy, or for another endowment policy that provides for payments beginning at a date later than payments would have started under the old policy.
  • Annuity contract for a life insurance or endowment policy.
  • Transfers of life insurance contracts where the insured is not the same person in both contracts. The IRS held that a company could not make a tax-free exchange of a key executive policy where the company could change insured executives as they leave or join the firm.
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image Planning Reminder
Financially Troubled Insurer
If your annuity contract or insurance policy is with an insurance company that is in a rehabilitation, conservatorship, insolvency, or a similar state proceeding, you may surrender the policy ...

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