- Hi, Randy Pierson,
Vice President of Life and Annuities for Gordon Marketing,
and welcome to another episode of
Selling Life and Annuities.
Today with me,
I've got Craig Miera
our Regional Vice President in charge of life insurance.
And we're going to be talking about MECs,
modified endowment contracts and
why sometimes
they're not necessarily a bad thing.
Stay tune.
- All right Craig
modified endowment contracts
in the world of life insurance. I'm sure a lot of advisors,
if they're familiar with MECs,
they think immediately bad thing. Right?
So what exactly is a MEC? Can you explain that
to the, to the agents watching this video?
- Sure. So the,
the MEC guidelines are the 7702 guidelines were put in
place in the mid eighties.
It was defined by Congress on how they were going to define
a life insurance contract,
put minimum death benefits
in regards to the premium while
still keeping everything tax-free.
- Okay, so the modified endowment contract rules
stipulated by Congress.
What are the effects on death benefit? I mean,
what are the limits? I mean, how, how can you,
in layman's terms, describe that to the agents?
- Sure. So in layman's terms, you can think of,
if we have a 45 year old male and he's paying $10,000 a year
into a life insurance policy,
the minimum amount of death benefit we can dial in,
let's just call that $750,000.
As long as we are at that 750 or higher,
then we have not violated the MEC corridor.
And we have a tax-free death benefit as well as tax-free
accumulation as well.
- All right.
So describe for agents then in what types of scenarios,
sales scenarios
would it be opportunistic or,
or a good planning strategy to intentionally
create a MEC?
- Well, there's really two scenarios.
The first of which is a short pay.
If we have that 65 year old and he has assets,
the family has assets,
and they just want to pay it in a shorter period,
say they want to pay it in a lump sum or over the course of
three years, the buy a million dollars of death benefit.
We can pay that in a lump sum or three years,
get the money out of the client's pocket have it can be
completely paid up and intentionally make it a MEC.
Now, even though we made it a MEC,
the death benefit is still going to be tax-free.
- All right. Very good.
So really it's a... from a planning standpoint,
illustration standpoint,
it's about fitting the product
to satisfy the client's objectives,
both from a death, but from a life insurance standpoint,
but also from a funding standpoint
- Exactly.
- In many instances.
Now, can we create a MEC with all permanent life insurance
policy, say whole life or IUL or UL.
- Within any chasseing.
So we went over the first scenario.
The second scenario would be an accumulation design that we
intentionally made a MEC as well.
And right now with rates being where they're at,
I'm seeing a lot of intentionally designed MEC on the
accumulation side as well. If we have that 62 year old,
is looking for immediate income. We can pour in,
let's just call it 500,000 into an accumulation focused IUL,
a whole life designed and turn on income in year two.
Now that's going to have tax ramifications.
The accumulation as low as the income pulling out will be
taxed just like an annuity,
but we're going to have higher upside potential within that
life insurance contract.
And then your death benefit is still going to be
100% tax-free even though we created a MEC.
- So in comparing a life insurance contract,
specifically designed as a MEC,
I think you really just kind of said the words in your last
statement that we're in essence, creating a,
an annuity look alike, right?
And then from a tax standpoint, the funds coming out,
as I recall in some of my recent readings,
it's treated as a lifeboat; last in first out.
So important things to keep in mind.
And I think you would just mentioned also IUL's
understanding that in today's world and with some of the
very competitive IUL products that we have out there,
we've got a higher caps, great return possibilities,
additional bells and whistles that frequently,
you're not going to see in an annuity product.
And from a tax standpoint,
if they're treated almost identically,
as long as the expenses within the life insurance contract
are reasonable. I would imagine that in many instances,
a well-designed MEC might be a better solution than a life,
than an annuity contract, correct?
- It can be.
And it's a case by case scenario.
It's something that everyone on our team,
myself, Brady Ray, Jim,
can help you go out and design
and find if a MEC versus non-MEC
may be a possible solution for your client.
- Yeah. You just took my last question.
So my last question was going to be,
how does an agent get an illustration or discuss a case?
So I will, and you just told them,
but I will reiterate the fact that one of the great things
about Gordon Marketing right now,
we've taken the opportunity during this,
this COVID pandemic to dramatically improve the quality of
our marketers at Gordon Marketing
and the number of marketers
that we have available to assist advisors.
So if you're watching this video and you'd like help,
better understanding how to properly design life insurance
cases for your scenarios,
and you just simply need help from an education standpoint,
illustration standpoint.
Don't hesitate to reach out to Craig or any of the other
number of life insurance markers that we have working on the
team. We've reached the end of this segment run out of time.
So I would ask,
however, if you're watching this video,
please do me a favor and click subscribe at the bottom of
the video and also the notification bell so that when we
roll out new content,
that might have a positive impact
on your sales practices,
that you'll be notified.
But with that, thank you Craig,
for participating great information.
And thank you for watching
agents out there.
Happy selling.
We'll see you next time.