Modified Endowment Contract - MEC

DEFINITION of 'Modified Endowment Contract - MEC'

If the cumulative premium payments exceed certain amounts specified under the Internal Revenue Code, the life insurance policy will become a Modified Endowment Contract (MEC). Taxation under a MEC is similar to taxation under an annuity. Under a MEC, the death benefit payable to the beneficiary is not subject to income tax.

BREAKING DOWN 'Modified Endowment Contract - MEC'

MEC is usually bought by individuals who are interested in a tax-sheltered, investment-rich policy, who do not intend to make pre-death policy withdrawals.

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