The IRS Code 1035 is a way for you to exchange different types of policies without being taxed. This law is important because it gives you a way to exchange an existing insurance or annuity contract for a new contract without having to pay taxes on what you have accumulated on the old policy. This gives you the opportunity to change and explore new types of policies that are available. You can even trade between the two different types of policies, which means you can trade an annuity policy for a life insurance policy.

In order to complete a 1035 exchange, you may begin by completing the forms for the new company you have selected. This includes a form authorizing them to request cash from your existing annuity company. As long as your money flows directly from one company to the next, it is considered tax-free. Another rule under the 1035 Code is that the owner and insured under both policies must be the same. You cannot change the ownership of the annuities in the process of a 1035 exchange.