Modified Endowment Contract

Reversing MEC due to a Premium Payment

If premium, and interest are refunded from the date of the premium payment until 60 days after the next policy anniversary.

Life policy purchased that stretches the tax laws for sole purpose of tax advantages and no real death benefit protection

Modified Endowment Contract

Reversing MEC due to a lapse

Owner has 90 days from the end of the grace period to reinstate the policy.

Consequences of Modified Endowment Contract

Pre-death distributions are taxed as "Income first(not basis first)," distributions are subject to 10% additional tax, except if policy owner is older than 59 1/2 or becomes disabled.

Modified Endowment Contract

if the cumulative premium payments exceed certain amounts specified under the Internal Revenue Code