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Marveling at the modified endowment contract

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Our industry has a product that is underutilized and underappreciated. It provides many of the benefits our seniors say they desperately need, yet it is rarely recommended by agents. In fact, I speak in places where agents haven’t ever heard of this product. This magnificent product is a modified endowment contract.

Simply stated, an MEC is a product that looks and acts like an annuity while you are alive and then transforms itself to look and act like life insurance when you die. A MEC is often referred to as a single premium life insurance policy. It can be a whole life, universal life, or variable life policy. It is a life insurance contract that is intentionally over-funded so that it can provide certain additional benefits for our prospects and clients.

A modified endowment contract has all the features of regular life insurance and annuities and these amazing benefits:

  • Because an MEC looks like an annuity while the insured is alive, withdrawals are taxed “last-in/first-out.” That means all the interest withdrawn is fully taxable. However, because an MEC looks like life insurance when you die, all the gains included in the face amount or death benefit transfer to the beneficiaries without income taxes.
  • The cash value accumulates on a tax deferred basis.
  • The proceeds avoid probate if the contract has a named beneficiary.
  • The contract provides incontestability and privacy for the named beneficiaries. This prevents contestations that can occur in “will only” transfers.
  • The owners can control the proceeds from their graves, preventing a beneficiary’s possible misuse of the inheritance. Agents should investigate these avenues.
  • MECs have creditor protection in many states. I explain to my clients that even if life insurance and annuities were the worst investments on the planet, in a society where everyone is suing everyone else, don’t you think you should own something untouchable?
  • Many MECs provide access to the face amount if you have a catastrophic or terminal illness, and some provide benefits for long-term care. These are the leveraging features of MECs.

There are other benefits as well. MECs are unique; no other product can provide and do all of this.
I ask my seniors this question all the time: “If I could show you a way to stay in complete control of your money until you take your last breath, so that instead of the government, a nursing home or a hospital taking your money, you could keep that money in the family to be used for generations to come, would you talk to me about it?” They always say, “Yes, we would.”


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