MEC – Modified Endowment Contract. What does that mean?

If your life insurance policy is in MEC status:
* You may be subject to additional taxes and penalties on any distributions from your policy during the life of the insured.
* Policy distributions, such as loans, withdrawals, surrenders, cash dividends, and dividends retained by the insurer as principal or interest on a loan under the policy, will be taxed on a “gain first” basis to the full extent of such gains in the policy.
* There is a penalty of 10% of taxable income for distributions from the policy prior to the policy owner’s age 59 ½, with certain limited exceptions.
In all cases, any gain in the policy is taxable on full surrender of the policy. The tax treatment of any death benefit provided under the policy does not change depending on whether the policy is a MEC or not.

May 28, 2013 · Jennifer · No Comments
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