How do I obtain a copy of my life insurance policy?
I am planning to leave active duty. Will this affect my existing insurance policy?
No, any change in active status will not affect your life insurance policy.
How do I change a beneficiary?
How does a 1035 exchange work?
A 1035 exchange is a transfer of funds from a current life insurance policy or annuity to a new policy or annuity without requiring the payment of taxes. A life insurance contract can be rolled into a new life insurance contract or an annuity. An annuity can only be rolled into a new annuity — it cannot be rolled into a life insurance contract.
Both of the following are needed from the surrendering policy:
- The cost basis, or documentation showing funds paid in and earned by the plan, minus any fees or loans
- A check in the amount of the plan balance after all deductions
The policy owner and insured or annuitant must be the same between the old policy and the new policy. Multiple life insurance contracts can be rolled into one, so long as the policy owner and insured are the same between all contracts. If multiple policies are rolled into one, and at least one of the policies to be replaced is a Modified Endowment Contract, the new policy is also considered a Modified Endowment Contract.
There is generally a 60-day conservation period when requesting a 1035 exchange, which can be waived at the request of the applicant.
What is conditional coverage and how does it work?
If the applicant passes away during the application process and our underwriters determine that the policy would have been approved, the death benefit will be paid.
What is a Modified Endowment Contract (MEC)?
How is a Modified Endowment Contract taxed?
Contracts that are funded to trigger MEC classification result in a change in required tax treatment so that any interest contained in cash value would be distributed first, regardless of the owner’s chosen method of receipt (e.g., policy loan offset, dividend as cash, partial or complete surrender). In addition, an assignment or change of ownership of a MEC to a non-spouse may result in an ordinary income taxable event to the grantor in the year of the distribution if any gain in cash value beyond premium payments have accrued.
A multi-contract tax aggregation rule also applies to all MEC life insurance policies issued to the same owner in the same tax year, resulting in any interest earnings contained within those contracts being dispersed first in the event that a withdrawal, loan, or dividend distribution of cash value occurred during the lifetime of the insured.
In addition to last-in-first-out tax treatment, any taxable gain distributed from cash value of a MEC is also subject to a 10% IRS imposed penalty if the distributions occur prior to the owner being age 59 ½. Any premium contribution returned to the owner in the form of a MEC cash value distribution is free of this 10% early distribution penalty. In addition, settlement of cash value in an income stream over the life expectancy of the insured avoids the 10% excise tax under 72(t).
Note that MEC tax treatment does not impact tax-deferred cash value accumulation within the contract or the tax-free nature of a death benefit settlement.