1035 exchange VAL insurance with loan to an annuity?

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PostPosted: Mon Jan 21, 2019 5:51 am   Post subject: 1035 exchange VAL insurance with loan to an annuity?  


I could use some guidance and advice.

I have a Variable Appreciable Life Insurance policy that has a Cost Basis of $23,501.98, a CSV of $17,056.63 and a death benefit of $105,698.55. There is an unpaid loan withdrawal on the policy of $16,137.07 with $454.71 in accrued interest for a total policy Debt of $16,591.78. I have made sporadic payments on the interest over the years (a 5.5% rate), but any additional payment over the interest never got applied to paying down the loan. Instead they applied it to my investment component, so the loan never seemed to go down in principal.

I have made steady monthly premium payments throughout on the policy and currently pay $76/mo. They sent me a letter as of Jan 4, 2019 stating that a Cash Surrender of this policy will result in a taxable gain of appx. $8,934.30 at that time.

My Policy anniversary date is July 15 and I opened the policy back in 1991.

What are my best options to avoid a taxable event this year and still keep the policy with the least amount of additional out of pocket expense? Ideally, i'd like to keep the policy, but I can also afford to get rid of it as i have another $1M+ in term insurance to get me through the next few years until the kids are through college.

I'm not looking to increase my monthly expenditures by more than $25/mo for the foreseeable future as I am trying to stick to a tight budget and pay down some unsecured debt at this time.

Is a 1035 exchange to an annuity an option? If so, is it a good option?

Any suggestions

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