What is true about a modified endowment contract?
A modified endowment contract (MEC) is a designation given to cash value life insurance contracts that have exceeded legal tax limits. When the IRS relabels your life insurance policy as an MEC, it removes the tax benefits of withdrawals you can make from the policy.
What are the benefits of a modified endowment contract?
Which of the following would always be considered a Modified Endowment Contract? Single Premium Whole Life would always be a MEC as it would always fail the 7-Pay Test.
Which of the following would always be considered a modified endowment contract?
Withdrawing money from a modified endowment contract is similar to withdrawing from a non-qualified annuity, which is funded with post-tax dollars. When you take money out of your MEC, the earnings are taxable as ordinary income before you turn 59 ½ and you also incur a 10% penalty.
What is the tax consequence of a modified endowment contract?
The type of multiple protection coverage that pays on the death of the last person is called a(n) Pre-death distributions will become taxable (The tax consequence of a Modified Endowment Contract is pre-death distributions are likely to become taxable.) 3. Under a Modified Endowment Contract, what are the likely tax consequences?
What is an endowment policy?
A type of life insurance policy which provides for the payment of the face amount at the end of the specified period if the insured is still alive is an endowment policy.) 13.
What was John John's modified endowment contract (MEC) worth?
John received a one-time distribution of $50,000 from his modified endowment contract (MEC). Prior to that, the contract's cash value was $150,000, the contract investment amount was $100,000, and the death benefit was $500,000.