Do you have a life insurance policy you’re concerned may not last, lacks guarantees, or may lapse, and you’re wondering how you could trade it in for a better model? The good news is that you have options, and you’re not stuck forever! Enter: the 1035 exchange. But, a strong word of caution: you need to understand what this entails and when it might hurt instead of help you.

https://www.youtube.com/watch?v=xzmzl8TkMDM

In this episode, Bruce and I discuss when you should use a 1035 exchange with life insurance. If you want to know the pros and cons of a 1035 Exchange--tune in below!

In this episode, you’ll learn:

What a 1035 exchange is and how it works.The reasons why (or why not) to do a 1035 exchange.Challenges you may face during the process.And more!

Table of contentsWhere Whole Life Insurance Fits Into the Bigger PictureUnderstanding the 1035 ExchangeReasons for ExchangingReasons Against ExchangingWhat You Really Should KnowThe 1035 Exchange ProcessIs a 1035 Exchange Right for You?

Where Whole Life Insurance Fits Into the Bigger Picture

A 1035 Exchange could be what allows you to ensure your life insurance is there for your entire life, however, Privatized Banking with whole life insurance is just one part of the bigger journey.

That’s why we’ve developed the 3-step Cash Flow System. It’s your roadmap to go from just surviving, to a life of significance, purpose, and financial freedom. 

The first stage is the foundation.  You first keep more of the money you make by fixing money leaks, becoming more efficient and profitable. 

Then, you protect your money with insurance and legal protection and Privatized Banking. 

Finally, you put your money to work, increasing your income with cash-flowing assets.

Understanding the 1035 Exchange

A 1035 Exchange is available through a provision in the IRS tax code, which allows you to transfer specific assets into assets of a like-kind without having to pay tax. Today, we’re talking specifically about the transfer of life insurance policies and why you would want to do a 1035 exchange in the first place.

Most often, a 1035 exchange is on the table when you have a policy that no longer seems like an ideal fit for you. If your insurance policy was not designed with you in mind or lacks guarantees, you are likely a candidate for a 1035. Regardless, if a policy isn’t working for you, know that you’re not stuck—you have options.

That said, it’s not always ideal to exchange a policy. It’s important to be informed about what a 1035 can and cannot do so that you’re not taken advantage of down the road.

Reasons for Exchanging

In some cases, it’s possible that you have a less-than-ideal policy design, and it feels like you’re continuing to pour in money with few guarantees. We see this often with universal life insurance. The problem is in the language of how some advisors pitch these products—flexible premiums aren't all that flexible.

In the later years of an in-force IUL, the cost of maintaining your policy can increase because premiums are non-guaranteed. So even though you can make flexible premium payments, you could be under-funding it and lose your policy.

To get a better idea of how your policy is performing, we recommend requesting an in-force illustration of your life insurance policy from your company. This will show you how your policy has performed and the projections for future performance. You will also see which guarantees you have, and which ones you do not. Use this information to assess whether or not your policy is doing what you want it to do.

Ultimately, we see people exchanging policies that just aren’t living up to their expectations. If you don’t currently have a life insurance policy, take some time to think about what you want to accomplish—leaving a legacy, protecting your family, leveraging your cash value, or more? And if you do have a policy, check-in and make sure it’s accomplishing what you wa...