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. What are the main factors that impact share prices in the insurance sector?

    The main factors that impact share prices in the insurance sector are interest rates, earnings and actuarial risk. In the ... Read Full Answer >>
  2. Why do insurance policies have deductibles?

    Insurance policies have deductibles for behavioral and financial reasons. Moral Hazards Deductibles mitigate the behavioral ... Read Full Answer >>
  3. Which emerging markets are seeing the strongest growth in the insurance sector?

    The emerging market economies seeing the strongest growth for the insurance sector are primarily the main emerging market ... Read Full Answer >>
  4. How do insurance companies use a whistleblower?

    Fraudulent claims are among the most prevalent and serious business risks that insurance companies face. Many consumers have ... Read Full Answer >>
  5. How is maintenance of standard of living for survivors accomplished in estate planning?

    Estate planning is an integral component of comprehensive financial planning, as it allows individuals and couples to maintain ... Read Full Answer >>
  6. What options strategies are best suited for investing in the insurance sector?

    Three segments comprise the insurance sector. The largest, property and casualty insurance, exhibits significantly less volatility ... 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

    How Does Cash-Value Life Insurance Work?

    Cash-value life insurance pays a beneficiary upon the death of the policyholder, and accumulates a cash value during the policyholder’s lifetime.
  9. Investing Basics

    Top 3 Ways to Manage Lump-Sum Windfalls

    Have you just had a load of money drop into your lap? If so, several enviable options are available to you. Which one is the best choice?
  10. Insurance

    Indexed Universal Life Insurance: The Pros & Cons

    What you need to know, to see if these vehicles fit into your financial plan.

You May Also Like

Hot Definitions
  1. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  2. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  3. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  4. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  5. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  6. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!