May 6, 2014. Many advisors consider modified endowment contracts (MECs) a tool of the past in structuring clients’ product portfolios—but in many cases, dismissing the MEC too quickly can cause your clients to miss out on the product’s benefits.
http://www.thinkadvisor.com/2014/05/06/modified-endowment-contracts-role-in-estate-post-r
(A) In generalIf there is a material change in the benefits under (or in other terms of) the contract which was not reflected in any previous determination under this section, for purposes of this section—.
https://www.law.cornell.edu/uscode/text/26/7702A
Modified Endowment Contracts’ Role in Estate, Post-Retirement Planning. Many advisors consider modified endowment contracts (MECs) a tool of the past in structuring clients’ product portfolios—but in many cases, dismissing the MEC too quickly can cause your clients to miss out on the product’s benefits.
http://www.thinkadvisor.com/2014/05/06/modified-endowment-contracts-role-in-estate-post-r
If the contract is reclassified as a Modified Endowment Contract, the following new rules apply: 1  Withdrawals are no longer taken on a first-in, first-out (FIFO) basis but rather a last-in, last-out (LIFO) basis.  Loans are now recognized as ordinary income to the owner and are taxable.
http://theinsuranceproblog.com/modified-endowment-contract-mec-should-you-be-worried/
If there is a reduction in benefits under the contract within the 1st 7 contract years, this section shall be applied as if the contract had originally been issued at the reduced benefit level.
https://www.law.cornell.edu/uscode/text/26/7702A
So, if one is constantly placing paid-up additions into a contract, the 7 Pay Test is constantly resetting. If the contract is reclassified as a Modified Endowment Contract, the following new rules apply: Withdrawals are no longer taken on a first-in, first-out (FIFO) basis but rather a last-in, last-out (LIFO) basis.
http://theinsuranceproblog.com/modified-endowment-contract-mec-should-you-be-worried/
modified endowment contract. An endowment contract wherein the amount to be paid out after the endowment period is greater than the face value of the policy. The amount payable in the case of death is either the face value or the cash value, whichever is greater. This type of contract is taxable and subject to any penalties after tax.
http://www.businessdictionary.com/definition/modified-endowment-contract.html
“(B) the contract is converted after June 20, 1988, from a term life insurance contract to a life insurance contract providing coverage other than term life insurance coverage without regard to any right of the owner of the contract to such conversion.
https://www.law.cornell.edu/uscode/text/26/7702A
Modified endowment contract defined. (a) General ruleFor purposes of section 72, the term “modified endowment contract” means any contract meeting the requirements of section 7702—.
https://www.law.cornell.edu/uscode/text/26/7702A
Anyone who has looked into cash value life insurance has probably come across the term Modified Endowment Contract (MEC). Those with flexible premium policies may have noticed a portion of their statements that stipulate whether or not the contract is a Modified Endowment Contract. You may have even seen numbers indicating the amount of money that can go into a policy before it turns into an MEC.
http://theinsuranceproblog.com/modified-endowment-contract-mec-should-you-be-worried/
what is a modified endowment contract?
A modified endowment contract is when the amount to be paid out after the endowment period is greater than the face value of the policy.