MEC test

May 22, 2019

  1. SParker
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    Hi All, quick question about MEC test. I have been going through illustration from different carriers and realize that they don't tell you the MEC number provided in the illustration is per year or 7 years in aggregate.

    For example, below is the verbiage from Penn in their illustration:

    "Your initial 7-pay premium is $20,000"

    Does it mean the MEC limit for the policy is $20,000 PER year or does it mean the limit is $20,000 for 7 years COMBINED, ie $2,857 per year?

    Thanks
     
    SParker, May 22, 2019
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  2. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    Per year
     
    scagnt83, May 22, 2019
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  3. SParker
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    SParker, May 22, 2019
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  4. SParker
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    BTW, for people who want to maximize cash value for their participating WL policies, they should fund up to the max of the MEC limit, correct? I have seen illustrations that are intended for cash value maximization but the premiums are nowhere near the MEC limit.
     
    SParker, May 22, 2019
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  5. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    That is correct.
     
    scagnt83, May 22, 2019
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  6. SParker
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    SParker, May 22, 2019
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  7. Allen Trent
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    Actually, it is only a per year maximum for the 7 pay tests if it is fully maxed out each year. It doesnt mean they are limited in each year t to $20k for sure as it has an aggregate cumulative test component also.

    It really only means the 1st year for sure. It could mean each year if the person funded up to the max 7 pay each year. If the person didnt pay the max 7 pay amount in some years, the Cumulative MEC calculations could allow them to catch up some of those missed max 7 pay premiums they didnt fully fund. IE, if they paid 20k in yr 1, but then only paid 10k in year 2, the cumulative test may allow 30k in year 3. So, it isnt necessarily a max of 20k per each year. TAMRA, TEFRA & DEFRA tests have tests to be met for annual, cumulative & single premiums I believe.
     
  8. SParker
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    SParker, May 25, 2019
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