Say my premium is $45 and I want to pay more. First off, can I do this and what are some pros and cons of doing so?
Total Comments: 13
Posted: Thu Apr 28, 2011 03:41 am Post Subject:
Pay more for what? Your question is too vague to determine exactly what you want to know.
If you're talking about life insurance premiums, it depends on the type of contract you have. Term, whole life, and variable whole life, the answer is no. Universal life, equity-indexed universal life, and variable universal life, the answer is yes . . . as long as the amount you are paying does not create a "Modified Endowment Contract".
Posted: Tue May 17, 2011 01:06 am Post Subject:
Why would creating a mec stop one from being Allowed to pay more.
Posted: Tue May 17, 2011 10:59 am Post Subject:
Why do you wish to pay more? Do you wish to have more coverage? You may always apply for more coverage when it comes to certain policies, but in the end it has a lot to do with the company norms and whether they have any other parameter to determine your coverage amount.
Posted: Wed May 18, 2011 07:08 am Post Subject:
Why would creating a mec stop one from being Allowed to pay more.
A MEC is not in your best interest. If you are under age 59-1/2, any attempt to remove money from the cash accumulation comes with a 10% penalty tax + ordinary income tax on the gains before basis can be withdrawn. The only thing about a MEC that resembles life insurance is the death benefit paid tax-free to a named beneficiary.
Posted: Wed May 18, 2011 09:53 am Post Subject:
Max, your response does not answer the question.
Posted: Wed May 18, 2011 03:47 pm Post Subject:
Then you answer it.
Posted: Wed May 18, 2011 07:51 pm Post Subject:
Max, you said that creating a MEC isn't allowed. Can you back this up or is this just another Max error which you won' admit to making.
Posted: Thu Jun 02, 2011 09:04 pm Post Subject:
creating a MEC isn't allowed
I never said that. You are putting words in my mouth. What I said was, "A MEC is not in your best interest." And I stand by that answer.
Other than a new endowment policy, which is a MEC by definition, only universal life policies (plain, indexed, or variable) are truly in jeopardy of becoming MECs due to overfunding or extreme cash accumulation (not currently likely except in a VUL).
If you've ever actually read a UL contract, you would have seen that the insurance company always includes a provision such as: "We have the right to reject any payment that would cause your policy to become a Modified Endowment Contract."
Why? Because they, too, know that event is not in your best interest. It is irreversible.
Posted: Fri Jun 03, 2011 10:35 am Post Subject:
Are you sure that I put words in your mouth?
The question was whether they could pay more.
You wrote, "the answer is yes as long as the amount you are paying does not create a "Modified Endowment Contract"."
That sure reads to me as you saying that a MEC isn't allowed. Whether one is a good idea is a very different question and depends upon the facts of the case.
Posted: Fri Jun 03, 2011 10:11 pm Post Subject:
Can't we all just get along?
Bottom line- there is nothing ILLEGAL in terms of "creating" a mec. It's, as Max put it, "Not in one's best interest" as it severely limits withdrawal and loan activity. While the death benefit from a mec will still be tax-free to the beneficiary when the insured dies, it creates issues when the policyowner wants to access the living benefits.
If you don't care about the living benefits, go ahead and mec the daylights out of the policy. Just remember that what you need (or think you need) now may be completely different a year from now.
A mec has violated IRC guidelines, and as such, is not considered a life insurance policy for tax standards any longer. As well, "once a mec, always a mec." You cannot get your life insurance tax status back once a policy has turned into a modified endowment contract.
So, go ahead and fund the hell out of your UL policy, just don't be surprised when it turns into a MEC, when you get whacked by the feds if you want to access your cash value and the policy fails the TEFRA tests as well. Then your beneficiary is going to be REALLY pleased with you.
Posted: Thu Apr 28, 2011 03:41 am Post Subject:
Pay more for what? Your question is too vague to determine exactly what you want to know.
If you're talking about life insurance premiums, it depends on the type of contract you have. Term, whole life, and variable whole life, the answer is no. Universal life, equity-indexed universal life, and variable universal life, the answer is yes . . . as long as the amount you are paying does not create a "Modified Endowment Contract".
Posted: Tue May 17, 2011 01:06 am Post Subject:
Why would creating a mec stop one from being Allowed to pay more.
Posted: Tue May 17, 2011 10:59 am Post Subject:
Why do you wish to pay more? Do you wish to have more coverage? You may always apply for more coverage when it comes to certain policies, but in the end it has a lot to do with the company norms and whether they have any other parameter to determine your coverage amount.
Posted: Wed May 18, 2011 07:08 am Post Subject:
Why would creating a mec stop one from being Allowed to pay more.
A MEC is not in your best interest. If you are under age 59-1/2, any attempt to remove money from the cash accumulation comes with a 10% penalty tax + ordinary income tax on the gains before basis can be withdrawn. The only thing about a MEC that resembles life insurance is the death benefit paid tax-free to a named beneficiary.
Posted: Wed May 18, 2011 09:53 am Post Subject:
Max, your response does not answer the question.
Posted: Wed May 18, 2011 03:47 pm Post Subject:
Then you answer it.
Posted: Wed May 18, 2011 07:51 pm Post Subject:
Max, you said that creating a MEC isn't allowed. Can you back this up or is this just another Max error which you won' admit to making.
Posted: Thu Jun 02, 2011 09:04 pm Post Subject:
creating a MEC isn't allowed
I never said that. You are putting words in my mouth. What I said was, "A MEC is not in your best interest." And I stand by that answer.
Other than a new endowment policy, which is a MEC by definition, only universal life policies (plain, indexed, or variable) are truly in jeopardy of becoming MECs due to overfunding or extreme cash accumulation (not currently likely except in a VUL).
If you've ever actually read a UL contract, you would have seen that the insurance company always includes a provision such as: "We have the right to reject any payment that would cause your policy to become a Modified Endowment Contract."
Why? Because they, too, know that event is not in your best interest. It is irreversible.
Posted: Fri Jun 03, 2011 10:35 am Post Subject:
Are you sure that I put words in your mouth?
The question was whether they could pay more.
You wrote, "the answer is yes as long as the amount you are paying does not create a "Modified Endowment Contract"."
That sure reads to me as you saying that a MEC isn't allowed. Whether one is a good idea is a very different question and depends upon the facts of the case.
Posted: Fri Jun 03, 2011 10:11 pm Post Subject:
Can't we all just get along?
Bottom line- there is nothing ILLEGAL in terms of "creating" a mec. It's, as Max put it, "Not in one's best interest" as it severely limits withdrawal and loan activity. While the death benefit from a mec will still be tax-free to the beneficiary when the insured dies, it creates issues when the policyowner wants to access the living benefits.
If you don't care about the living benefits, go ahead and mec the daylights out of the policy. Just remember that what you need (or think you need) now may be completely different a year from now.
A mec has violated IRC guidelines, and as such, is not considered a life insurance policy for tax standards any longer. As well, "once a mec, always a mec." You cannot get your life insurance tax status back once a policy has turned into a modified endowment contract.
So, go ahead and fund the hell out of your UL policy, just don't be surprised when it turns into a MEC, when you get whacked by the feds if you want to access your cash value and the policy fails the TEFRA tests as well. Then your beneficiary is going to be REALLY pleased with you.
InsTeacher 8)
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