A. A Modified Endowment Contract, commonly referred as a MEC, is a life insurance policy where premiums paid exceed certain amounts specified under the Internal Revenue Code (IRC).
Taxation under a MEC is similar to taxation under an annuity for any distributions (including loans) made while the policy is in effect. However, as with all life insurance, the death benefit payable to the beneficiary is NOT generally subject to income tax.
Once classified as a MEC, a policy remains a MEC for its lifetime, even if it is later changed or reconfigured.
Next blogpost, we will answer "what happens if my policy is a MEC".