Jason Owns a life insurance policy. He decided that he no longer has a need for life insurance and wants to exchange it for an annuity. To get the annuity he wants, he will have to exchange the life insurance policy and add additional money. Which of the following is correct?

• He can make the exchange, but it will be taxable to the extent of the cash value.
• He can make the exchange, but it will be taxable to the extent of the cash value less the additional money he puts into the annuity.
• He can make the exchange, which will not be taxable.
• He can make the exchange, which will not be taxable, but his basis will not reflect any of the investment into the life insurance policy.