Can a Variable Life policy be converted to an Annuity?

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Posted: Fri Jun 12, 2009 2:02 pm Post subject: Can a Variable Life policy be converted to an Annuity?

I need to know the answer to the question!!

hm8ret

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Posted: Sat Jun 13, 2009 2:43 pm Post subject:

Where's Gary when we need him! If I remember correctly from all the Series 6, 63, and 65 studies...I want to say that the answer is no. I think we learned "just say no to AL." MEANING that Annuity cannot be converted to life!

ChrisBantly

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Posted: Mon Jun 15, 2009 7:07 am Post subject:

Hi hm8ret, If you're considering an exchange of a variable product in order to get into a new contract, you should first know the differences and the similarities of these products. * Check out if the guaranteed death benefit of the new one is worthy of the old one. * Check whether you'd need to pay a surrender charge to move out of the old product. If you've been urged to change by a sales person, did you ask him regarding the new surrender charge? Did you forget to ask him regarding the annual charges associated with the new product? Steven

steven

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Posted: Mon Jun 15, 2009 8:37 am Post subject:

Well I'd say in all possibility 'NO' both the products are of different nature and I'm not aware any insurer would allow you to convert one type of plan into other. However, what exactly do you mean by 'convert'? Do you want to receive annuity income from it instead of death benefit?

jeorge

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Posted: Mon Jun 15, 2009 10:30 am Post subject:

You can 1035 exchange:

Life Insurance for Life Insurance;

Annuity for Annuity;

Life Insurance for Annuity.

You CANNOT 1035 exchange an Annuity for Life Insurance.

Quote:

Section 1035 of the Internal Revenue Code

Title 26 — Internal Revenue Code ("IRC")

Sub Title A — Income Taxes

Chapter 1 — Normal Taxes and Surtaxes

Subchapter O — Gain or Loss on Disposition of Property

Part III — Common Non-Taxable Exchanges

Updated: Friday, July 14, 2006

Section 1035 — Exchange of Stock for Property

(a) General rules --

No gain or loss shall be recognized on the exchange of --

(1) a contract of life insurance for another contract of life insurance or for an endowment or annuity contract; or

(2) a contract of endowment insurance (A) for another contract of endowment insurance which provides for regular payments beginning at a date not later than the date payments would have begun under the contract exchanged, or (B) for an annuity contract; or

(3) an annuity contract for an annuity contract.

_________________
Gary Spicuzza, *SAFE
Copyright 1956.
No Rights Reserved.
*Self Appointed Financial Expert

GarySpicuzza

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Posted: Mon Jun 15, 2009 4:48 pm Post subject:

I'll just confirm what Gary is saying. The answer is an unequivocable "yes". In fact, this is the best thing to do with a VL contract with a loss that is going to be dropped. Sometimes, it makes sense if there is a gain.

InsuranceExpert

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Posted: Mon Jun 22, 2009 2:40 am Post subject:

Quote:

Life Insurance for Life Insurance;

Annuity for Annuity;

Life Insurance for Annuity.

You CANNOT 1035 exchange an Annuity for Life Insurance.

Wow...so my just say no to AL was actually correct. I don't remember who taught us that, but I think it was in the Series 6 or 63 crash course.

ChrisBantly

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Posted: Mon Jun 22, 2009 10:05 am Post subject:

Quote:

Wow...so my just say no to AL was actually correct.

Yes, Chris you can't 1035 exchange an annuity for a life insurance policy.

That's because all the cash in the annuity all grows all tax deferred. The Gubment won't allow annuity to life insurance because the life insurance death benefit is paid to the beneficairy income tax free.

BUT,...OP's question was: