Endowment Insurance How Does The Taxation Of Modified Endowment Contract (MEC) Life Insurance Work?

How does the taxation of modified endowment contract (MEC) life insurance work? - endowment insurance

Income tax is normally payable only if the life insurance policy lapse or surrender, and even then only to the extent the withdrawal amount exceeds the premiums paid. Credit policy are not taxed when they are caught.

Law limits the amount of the premium under a life insurance policy may, in the first 7 years in politics with a policy he calls the "normal" taxation of income insurance are paid. If premiums are paid more, the policy as a contract cap to date (MEC).

The tax rate under a MEC is similar to taxation in the context of a pension. As part of a MEC, the death benefit to be paid to the beneficiary is not subject to income tax. In addition, the accumulation of cash value added tax is postponed.

Taxes are not for profit, if the Fund as a partial or complete, or lending policies are distributed. MEC for full or partial withdrawals and loans first interest is taxed as the difference of the first regular premium life insurance.

In additi on, passive distributions before age 59-1/2 typically subject to a 10% tax penalty. Unless otherwise indicated MEC, MEC introduces new measures, not sold, all exchanges of § 1035 should be reviewed to ensure that CME is not created by an amendment.