1035 Exchanges and Replacements Chapter Quiz
During replacement of life insurance, a replacing insurer must do which of the following? A. Designate a new producer for a replaced policy B. Send a copy of the Notice Regarding Replacement to the Department of Insurance C. Obtain a list of all life insurance policies that will be replaced D. Guarantee a replacement for each existing policy
C. Obtain a list of all life insurance policies that will be replaced
Which of the following is NOT an allowable 1035 exchange? A. A whole life insurance policy is exchanged for a Universal life insurance policy B. An annuity is exchanged for another annuity C. A life insurance policy is exchanged for an annuity D. A whole life insurance policy is exchanged for a term insurance policy
D. A whole life insurance policy is exchanged for a term insurance policy
You client is 45 years old and currently owns life insurance, but is considering purchasing a new Universal Life policy. Which of the following scenarios would NOT involve replacement? A. Allowing his one-year term policy to expire B. Borrowing 25% of the cash value of his existing Whole Life policy to purchase the new Universal Life C. Terminating the existing term-to-age 65 policy D. Placing his existing Whole Life on Extended Term
A. Allowing his one-year term policy to expire Allowing a term policy to expire at the end of its term would not be considered a replacement. All the other scenarios would result in diminishing the existing policy's value.
What part of the Internal Revenue Code allows an owner of a life insurance policy or annuity to exchange or replace their current contract with another contract without creating adverse tax consequences? A. Section 457 Deferred Compensation Plan B. Section 1035 Policy Exchange C. Modified Endowment Exchange D. 401k Plan
B. Section 1035 Policy Exchange
According to the Replacement Rule, replacement of life insurance is defined as a process in which A. Term insurance is changed to a whole life policy B. A lapsed policy is reinstated within a specific timeframe C. A new policy is brought, and an old policy is converted to a reduced paid-up policy D. An ordinary Life policy is converted to an annuity
C. A new policy is brought, and an old policy is converted to a reduced paid-up policy
