A life insurance policy becomes a modified endowment contract (MEC) if the policy does not meet the 7pay test requirements. The 7pay test is a tax code limitation designed to discourage life insurance premium schedules that would result in a paidup policy before the end of a sevenyear period. A policy that does not meet the 7pay test is classified as a modified endowment contract.

A life insurance policy that becomes a modified endowment contract, discourages cash value access by the policy owner because policy loans and withdrawals face taxes and penalties very similar to monies from a qualified plan.

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