what is the difference between a replacement and a 1035 exchange 
a 1035 exchange is a replacement however not every replacement qualifies as a 1035 exchange when an annuity or life insurance policy is exchanged into another annuity it is a replacement and 1035 exchange an exchange of an annuity contract for a life insurance policy can be characterized as a replacement but does not qualify as a 1035 exchange such transactions are taxable with gains and losses recognized 6the bottom linesection 1035 of the internal revenue code allows for the non taxable exchange of certain insurance products allowable exchanges include a life insurance policy to an annuity an annuity to an annuity an endowment to an endowment and a life insurance policy to a life insurance policy the cost basis of the old policy or contract becomes the basis of the new one despite losses that have eroded the balance policyholders should exercise caution when exchanging one product for another paying careful attention to forgone benefits charges fees and alignment with goals and objectives 