Life Settlements & 1035's

[newbyagent]

I know many agents will use 1035's to effectively switch a client from one policy to another. I think most do this to avoid prohibitive tax consequences of changing policies. My question is;

Can life settlements be done inside 1035's? Meaning can a policy be sold and a new one purchased in a 1035 exchange? Or does it only work if the policy is surrendered or allowed to lapse?

If life settlements can be done in a 1035 exchange, what are the considerations of doing that? Any drawbacks or negatives?

 

[lifesettlementadvisor]

This is not possible. Since the policy is not being surrendered by the investor that buys the policy, a 1035 is not possible.

The real point is that the majority of life settlements that are currently being settled in today's market are on insureds that would no longer qualify for a new life insurance policy. Usually replacement coverage for a life settlement client is not an option.