Annuity glossary

Modified Endowment Contract (MEC)

A life insurance policy that was funded faster than IRS limits allow under the seven-pay test. Once a policy becomes a MEC the status is permanent: loans and withdrawals are taxed earnings-first, and taking money out before age fifty-nine and a half can add an IRS penalty. The death benefit itself generally is not subject to income tax. Tax treatment depends on current law and the contract's facts, so individual guidance may be appropriate.

Any guarantee is backed by the claims-paying ability of the issuing insurer.