Under Section 1035 Exchanges, can a life insurance policy be exchanged for a qualified long-term care insurance policy?

Under Section 1035 Exchanges, can a life insurance policy be exchanged for a qualified long-term care insurance policy?

• A. Yes
• B. No
• C. Only if the policy is convertible
• D. Only for term life

Answer: (A)

Under Section 1035, you can swap a life insurance policy for a qualified long-term care insurance contract without recognizing taxable gain. This provision lets you shift from life coverage to LTC coverage when your needs change, while preserving tax deferral. The exchange is between contracts issued by an insurer, with the policyowner remaining the same, and the old policy’s value carries into the new LTC contract. Any gains aren’t taxed at the time of the exchange, and LTC benefits on a qualified contract are generally tax-free when used for eligible expenses. So, it’s allowed to exchange a life policy for a qualified LTC policy, making that the best answer.

Under Section 1035, you can swap a life insurance policy for a qualified long-term care insurance contract without recognizing taxable gain. This provision lets you shift from life coverage to LTC coverage when your needs change, while preserving tax deferral. The exchange is between contracts issued by an insurer, with the policyowner remaining the same, and the old policy’s value carries into the new LTC contract. Any gains aren’t taxed at the time of the exchange, and LTC benefits on a qualified contract are generally tax-free when used for eligible expenses. So, it’s allowed to exchange a life policy for a qualified LTC policy, making that the best answer.