1035 Exchange

The term refers to an exchange of value between two life insurance policies. This exchange is not taxable because it falls under the category of value transfer between assets of similar description. For the transaction to be fully exempt of tax, the second policy has to be equal or of greater cost. A good example of a similar instance is the 1031 Exchange, also known as a Like Kind Exchange or Starker Tax Deferred Exchange, which applies the same principle to fixed assets, usually real estate.