Annuities✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
Once a life insurance policy has become a Modified Endowment Contract, its MEC status:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Once a policy becomes a MEC, the status is permanent: stopping further premium payments does not undo the classification, and there is no waiting period after which MEC status lapses. The 7-pay test failure permanently affixes the MEC label, subjecting all future living distributions to LIFO taxation and the 10 percent early-distribution penalty. This permanence makes it important to monitor funding patterns early.
Why the other options are wrong
- B) MEC status does not sunset after any number of years in force.
- C) Surrendering and repurchasing creates a new contract subject to its own testing; it does not retroactively fix the old policy's status.
- D) MEC status is determined by the 7-pay test at issue and on material changes, not recalculated annually.
Memory hook
MEC is a tattoo, not a sticker: once you fail the 7-pay test, the label never washes off.