Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
MEC Modified Endowment Contract?
Old 02-28-2018, 07:36 PM   #1
Full time employment: Posting here.
 
Join Date: Jan 2008
Location: Flyover America
Posts: 510
MEC Modified Endowment Contract?

Had a dinner last night and got a pitch for Modified Endowment Contract.
Guaranteed 3% per year, A+ rated insurance company, liquid after the 1st year, life insurance benefit plus a dividend paid every year to put yield close to 4% and no tax deferred until distribution. Yada, Yada, ......

Hmm sounds like another alternative to safe money. Anyone have one? I am looking to see how many pages this thing is to read, guessing a very long read of legal ease..

Dinner was very good included dessert and wine....This thing must have high commissions...
__________________

capjak is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-28-2018, 08:59 PM   #2
Administrator
Gumby's Avatar
 
Join Date: Apr 2006
Location: Milford
Posts: 12,725
The issue with MECs is the tax treatment of withdrawals. Whole life insurance is more favorable. This is a good description of the issue. Modified Endowment Contract (MEC) Explained - Life Ant
__________________

__________________
Living an analog life in the Digital Age.
Gumby is offline   Reply With Quote
Old 03-02-2018, 06:53 AM   #3
Full time employment: Posting here.
ugeauxgirl's Avatar
 
Join Date: Jan 2016
Location: Rural Alabama
Posts: 780
It does have high commissions- like every insurance product. A MEC is a CLASSIFICATION of a life insurance policy. A policy will become a MEC if you pay the premiums all at once (single premium) or over only a few years. It isn't safe money- the MEC is life insurance and borrowing from a MEC is much more taxable than another sort of policy. MEC is actually a penalty classification from the IRS. Insurance policies have preferential tax treatment and the IRS doesn't want you dumping a bunch of money in a policy and then borrowing it tax free. if you intend to borrow, buy a policy in which the premium is paid over 7 years or more.
__________________
Projected retirement--2020 at age 48
ugeauxgirl is offline   Reply With Quote
Old 03-02-2018, 08:53 AM   #4
Full time employment: Posting here.
 
Join Date: Jan 2008
Location: Flyover America
Posts: 510
Quote:
Originally Posted by ugeauxgirl View Post
It does have high commissions- like every insurance product. A MEC is a CLASSIFICATION of a life insurance policy. A policy will become a MEC if you pay the premiums all at once (single premium) or over only a few years. It isn't safe money- the MEC is life insurance and borrowing from a MEC is much more taxable than another sort of policy. MEC is actually a penalty classification from the IRS. Insurance policies have preferential tax treatment and the IRS doesn't want you dumping a bunch of money in a policy and then borrowing it tax free. if you intend to borrow, buy a policy in which the premium is paid over 7 years or more.
Yes I found it interesting that they were pushing a product that is basically considered a "negative", i.e overfunded life insure (7x rule) that as a result is no longer tax free/deferred, strange. But it sure sounded good
capjak is offline   Reply With Quote
Old 03-02-2018, 09:00 AM   #5
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 3,207
Quote:
Originally Posted by capjak View Post
Yes I found it interesting that they were pushing a product that is basically considered a "negative", i.e overfunded life insure (7x rule) that as a result is no longer tax free/deferred, strange. But it sure sounded good
Note that a lot of prepaid funeral produces use essentially the MEC model being single premium life insurance. In this case since the policy pays off after death no taxes are due.
It should be noted that if you cash in the entire policy (i.e. surrender the policy for cash value) the MEC and multiple pay life insurance have the same effect on taxes.
So you could use a single pay policy to handle final expenses but instead of being sold by a funeral home, you could own the policy yourself.
meierlde is offline   Reply With Quote
Old 05-31-2019, 02:19 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 1,093
Reviving a deceased thread here.

I have a ex-mega corp term life policy that allows for additional optional premiums. The optional premiums earn 4% (minimum) tax-deferred.

In trying to understand possible gotcha's with this, I ran across a discussion of the fact that if "too much" money was contributed to the cash accumulation fund, that the policy would then become a Modified Endowment Contract (MEC). The "too much" apparently is complicated and depends both on the total amount in the cash accumulation fund and any given contribution.

I have a call into Prudential (keeper of mega-corp Group Term Life Insurance), who has told me they need to research the answer and will call me back in 7 or so days.

In the meantime, I started searching for calculators and/or spreadsheets but have yet to come up with anything.

Any ideas out there?
copyright1997reloaded is offline   Reply With Quote
Old 05-31-2019, 02:33 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W
Posts: 6,289
If you need LI, buy term insurance. End of LI suggestion.
__________________
Part-Owner of Texas

Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx

In dire need of: faster horses, younger woman, older whiskey, more money.
mickeyd is offline   Reply With Quote
Old 05-31-2019, 02:37 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 1,093
Quote:
Originally Posted by mickeyd View Post
If you need LI, buy term insurance. End of LI suggestion.
Please re-read what I posted. I [already] have a ex-mega corp term life policy.

I have no intention to buy any (additional) life insurance product, whether term or any other.

My question has to do with leveraging a cash accumulation option of an existing (what was) low cost term life policy, which is getting more expensive as I age. If anything, I will be reducing it, but before doing so I am trying to understand the cash accumulation option and whether it provides a means of 4% tax-deferred growth.
copyright1997reloaded is offline   Reply With Quote
Old 06-06-2019, 07:57 AM   #9
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 1,093
For anyone curious, the max Cash Accumulation values as relayed by GUL insurance company:
Age 61 male - $53,800 (for 100K term policy taken out 20+ years ago)
Age 63 female - $56,000 (again on 100K policy)
This is for a 4% (no fee) minimum return. Tax free withdraws if taken by beneficiary.
__________________

copyright1997reloaded is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
has FIRECalc been updated or modified? simple girl FIRECalc support 11 02-15-2013 03:26 PM
Genetically Modified (GM) Crops ratto Other topics 25 12-31-2011 07:31 PM
12b-1 fees will not be modified...now mickeyd FIRE and Money 5 03-27-2009 02:55 PM
Modified Power Wheels - Anyone done it? thefed Other topics 10 02-05-2008 10:09 AM
How to handle church endowment (looking for best guaranteed return) dandan14 FIRE and Money 3 08-22-2005 12:41 PM

» Quick Links

 
All times are GMT -6. The time now is 03:55 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.