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Which of the following statements regarding 1035 exchanges is NOT correct?
A) A universal life insurance policy may be exchanged for a fixed deferred annuity tax-free, and the deferred annuity thereafter becomes subject to regular annuity taxation rules.
B) A life insurance policy that is a modified endowment contract (MEC) may be exchanged for a new life insurance policy and, provided that premiums are paid for at least 7 years thereafter, no longer be considered a ME
C) In order for an exchange of policies to qualify for Section 1035 treatment, the exchange of policy values must be made directly between insurers.
D) A deferred annuity may be exchanged for an immediate annuity with no immediate tax consequences, but annuity benefit payments are subject to taxation under annuity taxation exclusion ratio rules.
Answer: A life insurance policy that is a modified endowment contract (MEC) may be exchanged for a new life insurance policy and, provided that premiums are paid for at least 7 years thereafter, no longer be considered a ME
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