What is a MEC?
A MEC is a modified endowment contract that will differ from a policy that is a non-MEC:
- To the extent there is gain in the contract, all cash value distributions and are taxable as ordinary income. If these distributions are taken prior to age 59 ½, an additional 10% penalty tax will be applied to the distribution
- There is no impact to the death benefit if a policy becomes a MEC
A policy becomes a MEC when:
- Total premiums paid into the contract exceed the stated IRS limits. There two limits to consider:
- The 7-pay limit, which is the maximum premium that can be put into the policy for the first 7 years
- The Necessary premium limits, which determine the MEC status of a policy after the policy’s first seven years.
Once a policy is issued and it becomes a MEC, it cannot go back to being a non-MEC life insurance policy. The change is one way and permanent.
- For more information, please reference this producer guide
- If your customer has any more questions - please utilize this guide
MEC on Coverpath
When you create a MEC quote, Coverpath shows a MEC warning. Coverpath also generates a compliant MEC basic illustration at time of quote and application. If you elect to send a MEC quote, the client can see the MEC illustration by clicking the link on the customer landing page. After a client submits their application for a MEC policy, that client will need to sign the MEC disclosure form in their application packet they will receive.
If a policy becomes a MEC as a result of an amendment or other pre-issue change, the customer will have to sign the MEC form before issue. Coverpath will collect that signature before a customer accepts their policy and it is issued.
Note about the MassMutual 6/20/2020 Reprice
Starting with WL policies issued on and after 6/20/2020, all Whole Life 10 Pay base policies issued by Coverpath and at MassMutual will be a Modified Endowment Contract (MEC).
Click here for more information.
To Avoid a MEC on a Whole Life 10 pay you can:
- Issue a longer pay WL policy (a 12 pay WL policy will not be a MEC)
- Add RTR to your 10 pay: With a high enough face amount, RTR will raise the 7 pay limit high enough to avoid a MEC
Can I explore other options to avoid MEC on EZ-App?
MassMutual does offer other methods of changing the MEC status of a policy. Please see the advanced sales training guide & resource on FieldNet for more options.