What is an MEC?
MEC stands for Modified Endowment Contract. An MEC is a life insurance policy with premium payments exceeding federal tax limitations in the ﬁrst seven years after issue or a change in beneﬁts. The cash value of an MEC will accumulate income tax free. In addition, death beneﬁts will still be income tax free to the beneﬁciary. Any pre-death distributions, such as full or partial surrenders, policy loans, and policy assignments, are taxable to the extent there is a gain in the policy. In addition to regular income tax, a 10% federal tax penalty is imposed on the taxable portion of the distribution. The penalty tax is waived only if the taxpayer is over 59½ or disabled, or if the distribution is paid out as a life annuity.1
1Catholic Order of Foresters nor its agents offer tax advice; consult a tax professional regarding your specific situation.