What Is a Modified Endowment Contract (MEC)?
A Modified Endowment Contract represents a life insurance policy that has exceeded federal tax law premium limits within its first seven years. This transformation occurs when policyholders contribute more money than permitted under the “7-pay test” established by the Technical and Miscellaneous Revenue Act of 1988. The classification fundamentally changes how the policy is taxed and accessed, creating important implications for financial planning and wealth management strategies.
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