Modified Endowment Contract (MEC)


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Which of the following is an advantage of a modified endowment contract (MEC)?

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1. Which of the following methods is used to tax the proceeds (withdrawal or loan) from an MEC?

2. The IRS imposes a five-year test for which type of insurance policy?

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About This Quiz & Worksheet

This quiz and worksheet tests your understanding of what a modified endowment contract (MEC) is and in what situations you would consider having one. You'll also review what you know about why it was created in the first place.

Quiz & Worksheet Goals

This quiz and worksheet focuses on what you know about:

  • The advantage of a modified endowment contract
  • What method is used to tax the proceeds from an MEC
  • The type of insurance policy that requires a five-year test by the IRS
  • Why the MEC was created

Skills Practiced

  • Knowledge application - use what you know about the method of taxing that is used for the proceeds from an MEC to answer a question about it
  • Information recall - see if you remember why the MEC was created
  • Interpreting information - verify that you read and are able to correctly interpret how to calculate payments to avoid failing the 7-pay test

Additional Learning

There is a full overview of this topic provided in the lesson, Modified Endowment Contract (MEC). In this lesson, you'll find a more extensive explanation of:

  • Describing the MEC
  • What the 7-pay test is
  • Understanding cash value life insurance
  • Rules the IRS has around MEC