Modified Endowment Contract - MEC

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Group Term Life Insurance

    A type of insurance coverage offered to a group of people. This ...
  2. Adjustable Life Insurance

    A type of life insurance that combines features of term and whole ...
  3. Traditional Whole Life Policy

    A type of life insurance contract that provides for insurance ...
  4. Death Benefit

    The amount on a life insurance policy or pension that is payable ...
  5. Life Insurance

    A protection against the loss of income that would result if ...
  6. Life Expectancy

    1. The age until which a person is expected to live. 2. The ...
RELATED FAQS
  1. How do I change my contingent beneficiary?

    Keeping your beneficiary designations up to date is an important aspect of comprehensive estate planning. Listing a primary ... Read Full Answer >>
  2. What's the difference between a collateralized debt obligation (CDO) and a collateralized ...

    A collateralized mortgage obligation, or CMO, is a type of mortgage-backed security (MBS) issued by an lender that handles ... Read Full Answer >>
  3. If both the primary and contingent beneficiaries are unavailable, what happens to ...

    One of the most common mistakes in estate planning is not keeping beneficiary designations up to date on life insurance policies ... Read Full Answer >>
  4. What types of insurance policies have contingent beneficiaries?

    A contingent beneficiary is a person designated to receive the benefits of an insurance policy or retirement account if the ... Read Full Answer >>
  5. Under what circumstances will a contingent beneficiary receive an insurance payout?

    A contingent beneficiary is someone who receives the proceeds of an insurance policy if the person named as the primary beneficiary ... Read Full Answer >>
  6. What is the difference between ex-ante moral hazard and ex-post moral hazard?

    Moral hazard refers to the way a party acts in a particular situation if protected against risk. It describes the behavioral ... Read Full Answer >>
Related Articles
  1. Home & Auto

    Why Your Will Should Name Designated Beneficiaries

    Find out how to make the tough decisions when it comes to choosing who will receive your assets and how they will be paid out.
  2. Insurance

    Insurance: Avoiding The Modified Endowment Contract Trap

    Congress has placed limits on the amount of money that can be put into life insurance policies - what can you do to counteract this?
  3. Insurance

    15 Insurance Policies You Don't Need

    Learn how to save money by saying "no" to unnecessary coverage.
  4. Professionals

    CFP, CLU Or ChFC - Which Is Best?

    The designation you choose will depend on which areas of financial planning you want as your focus.
  5. Retirement

    Establishing A Revocable Living Trust

    This arrangement allows you to have more control over your estate - both before and after your death.
  6. Options & Futures

    Benefit Issues When Your Employer Goes Bankrupt

    There are some safeguards in place to ensure that health benefits don't just disappear when a plan is canceled.
  7. Options & Futures

    New Option For Beneficiaries: Reversionary Annuities

    This vehicle can provide survivors with guaranteed income and lower premiums.
  8. Insurance

    Life Insurance: How Much Does Age Raise Your Rate?

    If you need life insurance, try to get it before your next birthday. Here's why.
  9. Insurance

    What Happens If Your Insurance Company Goes Bankrupt?

    When insurance companies go bankrupt or face financial difficulty, it's bad news for policy holders.
  10. Insurance

    Should You Borrow From Your Life Insurance?

    A loan against the cash value of your life insurance isn't the best way to raise money – but sometimes it's the best choice you have. How to decide.

You May Also Like

Hot Definitions
  1. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  2. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  3. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  4. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  5. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  6. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
Trading Center