The 7-pay rule is a federal tax qualification test applied to life insurance policies, including Indexed Universal Life policies, to determine how much in policy premiums you can pay in policy premiums over its first seven years (or seven years after a material change). If you pay too much in policy premiums too quickly into your policy, your life insurance policy will be declared a "modified endowment contract" or "MEC." Modified endowment contracts, as a life insurance policy, still provide an income tax-free death benefit for the beneficiaries. And a MEC still provides tax-deferred cash value accumulation. However, any distributions from the cash value of your policy can be subject to taxation to the extent of any gain in your contract