Group Life & AnnuitiesQuestion 116 of 716
Which of the following exchanges is NOT permitted on a tax-free basis under Internal Revenue Code Section 1035?
a.An annuity exchanged for a life insurance policy
b.A life insurance policy exchanged for an annuity
c.An annuity exchanged for another annuity
d.A life insurance policy exchanged for another life insurance policy
Explanation
Section 1035 permits tax-free exchanges life-to-life, life-to-annuity, and annuity-to-annuity. The one direction not allowed is annuity-to-life, because that would convert taxable annuity gains into a life insurance death benefit and undercut the tax rules.
Law Reference: 26 U.S.C. §1035This topic, taught in full in the California Life & Health Insurance Producer Exam guide. California Life & Health Insurance Producer Exam — Complete Study Guide (2026) — PDF + EPUB, $19.99 · 14-day refund →
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Related questions on this topic
- Which annuity settlement option produces the largest periodic payment for a given premium, all else equal?
- A married couple wants lifetime income that continues to whichever spouse lives longer. Which annuity settlement option is the most common fit?
- What is the additional IRS penalty (on top of ordinary income tax) for taking a taxable withdrawal from a non-qualified annuity before age 59½?
- Which statement about a typical annuity surrender charge schedule is correct?
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- Which of the following is NOT one of the eligible group categories for group life insurance in California?
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PrepPass team · Verified against California Life & Health Insurance License Exam · How we review
Reviewed by John Zihao Zhang — California-Licensed Life Insurance Agent (CA Dept. of Insurance License #4396095 — verify)