How is MEC status determined?
A Modified Endowment Contract (MEC) is a life insurance policy that has had cumulative premium payments made during the first seven years that exceed a limit defined in the tax code. This limit is called the 7-pay limit and depends in part on the amount of the policy’s death benefit and the age of the insured. At any point in time during the first seven policy years, premiums paid cannot exceed the sum of the annual 7-pay limits or the policy will become a MEC. This means your total limit will increase each of your first seven policy years. After seven years, MEC testing will not apply unless at any point in time a “material change” requires your policy to start a new 7- pay testing period with new 7- pay limits. Whenever there is a “material change” under a policy, the policy will generally be (a) treated as a new contract for purposes of determining whether the policy is a Modified Endowment Contract and (b) subjected to a new 7-pay period and new 7-pay limit. Material changes includ
