What is the impact of this lower rate?
The MEC limit for permanent life insurance policies will be increased from 10% for older insured to around 200% for younger insured!
What is MEC Limit?
It stands for Modified Endowment Contract. IRS has a 7702 code which limits the amount of premium and cash value in a policy relative to the death benefit, so you cannot put too much money into your permanent life insurance policy and making it more like a "tax-free" investment.
To determine the maximum amount you can put into a policy, there is a "7-Pay Test", if your policy fails the 7-pay test, it will become a MEC, which effectively takes life insurance taxation and turns it into annuity taxation.
So with a higher MEC limit effective January 1, 2021, anyone who purchases permanent life policies (Whole Life, IULs, etc.) now will be able to put more money into their policies and that money will grow tax-free and taken out tax-free as policy loans.
The above will apply for new policies, unfortunately it won't apply for policies went effective prior to January 1, 2021.