PosFCF, you wrote: << By the way, MEC stands for Modified Endowment Contract. >>Correct<< In essence it is an IRS ruling (perhaps based on a change in law?) >>Actually, it's really not an IRS "ruling." It is a part of the change in the tax code with regard to what is defined as "life insurance." So, it's by the definition in the tax code that if a life insurance contract doesn't meet certain conditions, it is considered a Modified Endowment Contract and NOT a Life Insurance Contract. And so, the rules that apply to life insurance don't apply to a Modified Endowment Contract. Then there's a set of rules for Modifeied Endowment Contracts.<< that eliminated some of the loopholes where folks were using life insurance loans to avoid certain taxes. The average bear doesn't run into often, but it might have applicability when one plans to take policy loans soon after establishing a policy. >>Yes, it closed some of the loopholes. However, it really wasn't about policy loans. It was really about the introduction of Universal Life contracts (and later, variable life contracts) where, at the time, there was no limit as to how much money could be put into its reserve account. Then the policyholder could, as you've suggested, then use policy loans features of a life insurance contract to take advantage. Now with the changes is the tax code, there are specific limits as to how much can be put in. If that amount is exceeded, it becomes a Modified Endowment Contract, which no longer has the tax-favored treatment that a life insurance contract does. The rules concerning the policy loan provisions have not really changed – except maybe for when a policy is surrendered or lapses.<< I've about exhausted my understanding of the MEC so I would just suggest that a combination of insurance agent and accountant working on your behalf should help steer you clear of any problems.</> >>I would agree.
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