What Is A Modified Endowment Contract?

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   Peggy Mace

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   Life insurance was given tax favored status because it is was established for death protection. However, people started putting ever larger amounts of money into insurance policies due to the tax free growth and loans, for investment purposes. In 1988, Congress put a limit on how much cash can accumulate in a policy within a certain period of time and still avoid income tax. When the policy goes over that limit, it is called a Modified Endowment Contract (MEC) and no longer gives the policyowner access to cash values tax free.
   
   

   Answered on August 26, 2013

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