---
title: What is a 1035 exchange | Coverfolk
url: https://coverfolk.com/answers/exchange-1035
updated: 2026-10-08
---

# What is a 1035 exchange?

Updated October 8, 20263 sourcesCoverfolk team[Fact checked](/editorial-standards)

The short answer

A 1035 exchange lets you trade one life insurance policy or annuity for a new one without paying tax on the gains. It is named after a section of the tax code.

You can trade life insurance for life insurance. You can trade life insurance for an annuity. You cannot trade an annuity for life insurance.

The trade must go straight from the old company to the new one. If you cash out and then buy, you lose the tax break.

It can still cost you. The old policy may have surrender charges. The new one may start a new surrender period.

A new policy also starts a new 2 year contest period. During that time, the insurer can look hard at your application if you die.

FINRA says to make sure the switch is better for you and not just for the person selling it. Ask what the agent will earn.

* Get illustrations for old and new policies
* Ask about surrender charges on both
* Ask what features you lose
* Ask what the agent earns
* Keep the old policy until the new one is in place

## More questions

### Can I get cash in a 1035 exchange?

Not if you want the tax break. The money must move from policy to policy.

### Do I need to be healthy?

For a new life policy, usually yes. Your new price is based on your current age and health.

### Can I change the insured person?

No. A life insurance 1035 exchange must cover the same insured person.

## Words to know

[1035 exchange](/glossary)
:   A tax rule that lets you swap one life insurance policy for another, or for an annuity, without paying tax on the gain at that time.

[Agent](/glossary)
:   A licensed person who sells insurance for one or more companies. Agents are paid commission.

[Surrender charge](/glossary)
:   A fee you pay for canceling a policy or contract early.

## Sources

1. [FINRA: Should you exchange your life insurance policy?](https://www.finra.org/investors/insights/should-you-exchange-your-life-insurance-policy)
2. [Kansas Insurance Department: Life, annuities and LTC shopper's guide](https://insurance.ks.gov/documents/department/publications/life-annuities-LTC-shoppers-guide.pdf)
3. [NAIC Life Insurance Buyer's Guide](https://content.naic.org/sites/default/files/publication-lig-lp-consumer-life.pdf)