Need Help? Contact Us Now!

Call 1.877.227.4484

Live Chat
GET STARTED NOW
Life Settlement
Educational Information
Welcome Funds has compiled every term, phrase & definition related to life settlements. Have more questions? Call us toll-free at 1-877-227-4484 or complete our Quick Online Qualifier to determine your eligibility.

REQUEST A FREE GUIDE

By submitting this form, you are consenting to
receive marketing emails from Welcome Funds

DEFINITION OF MODIFIED ENDOWMENT CONTRACTS (MEC)

Modified Endowment Contracts (MEC) are the result of paying too much premium into an equity indexed universal life, variable universal life , or other adjustable life policy in the first 7 years. If this amount exceeds the amount needed to provide a paid-up policy based on 7 statutorily defined level annual premiums (7-pay test), the life insurance policy becomes a MEC. The life insurance company can accurately determine whether payments into a life insurance policy run the risk of becoming a "MEC." When a policy becomes a MEC, the tax status of death benefit is unaffected and any policy build up continues to grow tax deferred. However, any withdrawal of cash values prior to the insured's age of 59 will be subject to a 10% penalty. Additionally, withdrawals from the policy are taxed on the LIFO tax basis meaning the cash value "last in is the first out" therefore generating an instant taxable event.

BACK TO GLOSSARY