"Brent D. Gardner, ChFC" <bgardner20[at]cox.net> wrote in message news:wHSWc.14852$nk.11551[at]okepread05...
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Brent, please allow me to amplify your reponce, in that your admonition
to AVOID a MEC definition of a Life Insurance contract should apply
primarily to any desire that the Insured (or Owner) might have to take any
funds OUT of the contract, in any fashion, PRIOR to Death.

IF the INTENT is to maintain the contract UNTIL Death, then the fact that
the Contract is determined to be an MEC is of no consequence.
Cal Lester CLU



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"Tim Williams" <bigbill9111[at]yahoo.com> wrote in message
news:2osm8lFe2s84U1[at]uni-berlin.de...
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To keeep things simple, look at it this way:

During life, a MEC and annuity have SIMILAR income tax treatment.

At death, there's a difference. One is income tax free.

Generally, a MEC is something to avoid. Exceptions include BOLI and single
premium products with accelerated benefits.

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

"Tim Williams" <bigbill9111[at]yahoo.com> wrote in message news:2osm8lFe2s84U1[at]uni-berlin.de...

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There is NO similarity. an MEC is a definition applied by IRS
to ANY form of Life Insurance, wherein the premiums paid into
the contract EXCEED 1/7th the Annual Premium during the
first seven years.

ANY withdrawal AFTER the contract is declared an MEC,
is treated as LIFO, and is income taxable until ALL of the
earnings are removed and taxed, then the balance is BASIS
which can be removed Income Tax Free. Yes the penalty applies



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NO. Any proceeds "over & above" the BASIS, is treated
as Taxable Income to the beneficiary


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Your statement does not make sense. However, the fact that
a contract is declared an MEC, does NOT affect the Income
FREE Death Benefit payable to a named beneficiary.

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Yes & NO. the only primary benefit is the fact that it has an
Income Tax Free Death benefit, which the Annuity may not.


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NO ! ! ! ! YES ! ! ! ! !

Cal Lester CLU

As far as I understand, Uncle Sam intervened in the eighties to limit
the amount of cash value Universal Life Insurance policies could hold.
Basically many people 'max-funded' their policies and took advantage of the
beneficial tax treatment, thus using the insurance as an investment vehicle
rather than traditional insurance.

After much brain-storming they invented the 7-pay rule along with the
corridor rule, which limited one from over-funding their Universal policy.
The policies had to pass the 7-pay test to maintain the preferential tax
treatment of traditional life insurance, else they become a Modified
Endowment Contract (MEC).

A MEC is similar to a Universal policy in that it contains a death
benefit, but has a few characteristics of annuities, such as: 1. any
withdrawal before 59 and 1/2 incurs a 10% penalty and 2.) interest is
taxable at the time it is withdrawn (LIFO).

Is it true that an interest in an annuity is taxable to the beneficiary
on the policy holder's death (assuming it is a type of annuity that lists a
beneficiary)?

If one has a variable MEC, then because of the death benefit, it is
safer than traditional variable insurance and investments?

Is a MEC more beneficial than an annuity? Under what circumstances?

If one has investments in mutual funds as passes away, does the
inheritor inherit the funds tax-free? If yes, then this is not so of
annuities? Do MECs pay the beneficiary tax-free?