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Are You Getting the Cash Value You Deserve?

The current crediting rate on Cash Value Life Insurance from Navy Mutual is 7.4 percent . Learn more about what Navy Mutual Aid Association can do for you.

Details on 1035 Exchanges


Most articles about a section of the Internal Revenue Service Tax Code are usually very good antidotes for insomnia.  However, the detail of Section 1035 of the Tax Code is something every owner of permanent or cash-value life insurance should know.  Simply put, Section 1035 allows life insurance and annuity plan owners to transfer cash value from an old plan into a new plan tax-free.  "1035 Exchanges," as they are known in the life insurance industry, can be a very effective tool for maximizing the value and benefit of permanent life insurance.


A 1035 Exchange is a tax-free rollover of cash value funds directly from one life insurance company plan to another.  In other words, you can take money from an old plan and transfer it directly into a new plan.  Since the funds do not pass through your hands, but are directly between the two companies, the IRS does not tax the transfer.  The funds must be transferred into a new plan and the owner and the insured must be the same on both the old and new plans.


Tax Consequences


If you surrender an existing underperforming whole, universal, variable, or any permanent life insurance policy, all of the interest distributed as part of the cash surrender value will be taxable as ordinary income.  In addition to the large tax liability this could create, it could have another unintended consequence.  Because the interest is treated as ordinary income, you could find yourself in a higher tax bracket for that tax year and all of your income in that year could be subject to a higher tax rate. 


All this can be avoided by a 1035 Exchange. 


Ready to Make a Change


What does all this mean to a Navy Mutual member?  You can use a 1035 Exchange to move money from an old underperforming life insurance plan or plans into a new Permanent "Plus" plan with Navy Mutual.  Perhaps you have an old policy you bought before you joined Navy Mutual, or maybe a parent or grandparent bought you a small life insurance policy when you born and gifted it to you at an older age.  A 1035 Exchange allows you to turn these "lemons" into lemonade with Navy Mutual's Permanent Plus!


Click here to download the 1035 Exchange Documents.

Annuities Benefit Too

You can also use 1035 exchanges to fund new annuities.  For example, if you have been using your permanent life insurance plan as an investment vehicle to accumulate funds tax-deferred for retirement, transferring the funds using a 1035 exchange to a fixed immediate annuity with Navy Mutual can be a great way to use your accumulated cash value to generate retirement income.  You can turn your cash value into a personal pension plan.  An immediate annuity  from Navy Mutual will guarantee a stream of income no matter how long you are alive, it will be guaranteed never to decrease, and it will never pay out less than you put in.  Our nonprofit status allows us to pay our annuitants a significantly higher monthly income than most for-profit life insurance companies. To learn more about annuities from Navy Mutual, click here.


How Navy Mutual Can Help


Navy Mutual is dedicated to making the 1035 Exchange process as easy and hassle-free as possible.  Simply complete and attach a 1035 authorization form to your Navy Mutual Permanent "Plus" life insurance or fixed annuity application.  Once the plan is medically approved (life insurance only), Navy Mutual will contact the other insurance company to have them perform the 1035 exchange and send the funds directly to Navy Mutual.  Once we receive the funds, the plan will be issued and mailed to you for your review.  No additional action or paperwork will be needed from you!  To learn more about 1035 exchanges and for help deciding if it is a good option for you, click here or call 800-628-6011 and speak with a Navy Mutual membership representative.

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