Which of the following exchanges is NOT allowed under Section 1035?

A key component of Section 1035 of the Internal Revenue Code is that it allows for the tax-free exchange of certain types of insurance and annuity contracts. The provisions specifically permit the exchange of a life insurance policy for another life insurance policy, an endowment policy, or an annuity contract, as well as the exchange of an annuity for another annuity.

The exception presented in the question indicates that an annuity cannot be exchanged directly for a life insurance policy. This restriction is primarily based on the nature of the two contracts; annuities are seen as investments for income distribution, while life insurance is fundamentally designed to provide a death benefit. Because of these differing purposes and functions, exchanging an annuity for a life insurance contract does not align with the provisions allowed under Section 1035, which is why such an exchange is not permitted.