What Does MEC Mean In Life Insurance? 
MEC is a Modified Endowment Contract . It is a life insurance policy that meets the IRS definition of life insurance but fails a specific premium test -LRB- the seven pay test -RRB- meant to limit using life insurance as a tax sheltered investment vehicle and was established in a tax change in 1988 -LRB- TAMRA -RRB- . MEC policies still retain income tax-free death benefit characteristic . But , it changes the favorable tax treatment of cash value distributions normally associated with life insurance to tax treatment normally associated with annuities . Owners of a MEC would not likely plan to take cash from the policy . Typically , MECs created on purpose are single premium policies and used in estate planning techniques . For example , instead of a large single premium annuity which would result in income tax payable on the death benefit proceeds , some high net worth individuals may elect to fund a single premium life insurance policy which provides an income tax-free death benefit . 