Policy Owners Last reviewed: 2026-10-03 Part of Cash value

1035 Exchange of an Older Universal Life Policy: When It Helps

Written and reviewed by Hans Goldstein, licensed insurance producer, NPN 20602398 · CA Insurance License #4273294
Last reviewed October 3, 2026 · Published October 3, 2026

Short answer: a 1035 exchange lets you move an existing life policy's value into a new life policy or an annuity without paying tax on the gain. For an older universal life policy that is draining, the exchange can make sense: into a guaranteed UL if you need the death benefit and are insurable, or into an annuity if you no longer need coverage. It does not always win: new underwriting, new surrender charges and a new contestability period are real costs. Loans in an exchange need special care.

Where the exchange can go

1035 exchange directions

From	To	When it fits
Old UL	Guaranteed UL	You need the death benefit for life and are insurable; you want certainty instead of monitoring
Old UL	New IUL or WL	You are young and healthy enough for cash value to build again
Old UL	Annuity (including MYGA or SPIA)	You no longer need coverage but want to keep the gain tax-deferred or turn it into income
Annuity	Life insurance	Not allowed: an annuity cannot be exchanged into life insurance under 1035

Rules: IRC 1035.

A framework for an aging UL

Get the in-force illustration first. If the guaranteed column lapses in the next few years and the midpoint column at your target age needs a premium you will not pay, the policy is a candidate for change.
Check insurability. A new policy means underwriting at today's age and health. If you would rate poorly, the old policy may be worth more than any replacement.
Price the alternatives on the same death benefit, including reducing the old policy's face amount, which is often the cheapest fix.
Count the costs: new surrender charges, a new 2-year contestability and suicide period, and the agent's compensation on the new policy.
Loans: an outstanding loan extinguished in an exchange can be taxable boot. Some exchanges carry the loan over; plan it with a tax advisor.

Policy owners

Old UL? Get it reviewed.

Send your email and I'll send the in-force illustration request letter. Return the illustration and I'll review it within one business day.

We’ll email it to you. Hans Goldstein · NPN 20602398.

Rather talk it through? Or book 15 minutes on Hans’s calendar.

Replacement rules protect you

California requires replacement notices and comparisons when one life policy or annuity replaces another (CA Ins. Code 10509), and agents owe seniors a duty of honesty and good faith. An exchange should be documented as better for you after all costs. Hans will tell you when keeping the old policy is the right answer, which it often is.

Annuity options for a no-longer-needed policy: MYGA rates · SPIA rates. For carrier context on closed blocks, see the Global Atlantic owner guide.

Send the statement or letter. Get a plain answer.

Within one business day you get a written read: what the letter or statement means for your policy, the options, and the one to take first. No pressure to change anything.

Rather talk it through? Or book 15 minutes on Hans’s calendar, or call 213-414-2808.

Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer

Frequently asked questions

What is a 1035 exchange?

An exchange under IRC 1035, which generally defers tax, of a life insurance policy into another life policy or an annuity, or an annuity into another annuity, without paying tax on the gain.

Can I exchange my life insurance into an annuity?

Yes, a life policy can be exchanged into an annuity under section 1035. An annuity cannot be exchanged back into life insurance.

Should I exchange my old universal life policy?

Only if an in-force illustration shows it is failing and a new contract is clearly better after new underwriting, surrender charges and contestability.

What happens to a policy loan in a 1035 exchange?

A loan extinguished in the exchange can be taxable boot. Some exchanges carry the loan over. Plan it with a tax advisor.

Is there a cheaper fix than an exchange?

Often. Reducing the face amount of the old policy can lower charges and extend coverage without new underwriting.

Sources

Hans Goldstein, CA Insurance License #4273294 · NPN 20602398 · Goldstein & Co. LLC dba Goldstein Insurance Services, CA License #6016830

Contact: hans@hansgoldstein.com · 213-414-2808

General education, not tax or legal advice. Tax treatment depends on your facts and on current law, which can change. Talk to your CPA or estate attorney. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Guarantees apply only to the contractual terms of the policy. Caps, participation rates, loan rates, charges and dividends are not guaranteed and can change. Hans is paid a commission by the insurer if you buy a policy through him. For life insurance, ask and he will tell you what he earns on your specific policy. Product and company names are trademarks of their owners. Goldstein Insurance Services is an independent agency, not affiliated with or endorsed by any insurer named here. Life insurance requires underwriting; not everyone qualifies. This page describes products in general terms; read the policy and the insurer's disclosures before you buy.