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Sometimes. Here are other reasons I can think of that some people 1035 exchange an existing life policy
1. Current policy is crashing and cant be saved or has no option to elect a reduced paid up policy, but the consumer still wants coverage. IE: VUL returns have hit the cash value too much that premiums to properly fund are not feasible or maybe not legally allowed to fit in policy. Same for old ULs with very low interest rates compared to when purchased. Client if insurable might move to a new life carrier if they still want death benefit. if they dont care about death benefit, they might 1035 exchange to NQ Annuity
2. 1035 exchange is done to avoid being taxes on any built up gains in the policy. If the policy was surrendered, the client might owe ordinary income tax on the total gains of the policy, so a 1035 exchange to a new paid up life policy, an annuity or a LTC combo policy could avoid/defer the taxation on the gains & provide some wanted protection or savings
3. Carrier that used to be great/illustrated great quit paying dividends, making the current policy not look as good as other options available. Client that might have been putting huge sums into a policy based on those original illustrations may discover they no longer want to max fund something that doesnt look good going forward.
