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Q&A: "I am 85 Years Old and Have a Matured Annuity with an Insurance Company. Could I Trade it in for a Whole Life Policy or Another Kind of Paid-Up Life Insurance Policy?"

Insurance Tax

Question: 

I am 85 years old and have a matured annuity with an insurance company. Could I trade it in for a whole life policy or another kind of paid up life insurance policy?

Larry's answer:

Unfortunately, you won't be able to "trade" the annuity for a life insurance policy without triggering tax implications. 

Section 1035 of the tax code allows trades (called "tax-free exchanges") of:

  • a life insurance contract for another life insurance contract
  • a Modified Endowment Contract (MEC) for another MEC, or for an annuity
  • an annuity contract for another annuity contract
  • a life insurance contract for an annuity contract

. . . . but not an annuity contract for a life insurance contract. 

That being the case, you'd have to surrender the annuity, pay whatever taxes are due, and use the proceeds toward a new life insurance policy. 

Some insurers offer permanent insurance to age 85 on a single-premium basis if your health is good overall. But many place an upper limit around age 80. 

Hope that helps. All the best.

Originally posted on NerdWallet's Ask an Advisoron June 29, 2014.