All right today we're gonna go through some insurance lingo, all this language that is
also easy to understand on these complicated life insurance illustrations. The first thing we'll
start with is this guy, right, this MEC which stands for modified endowment contract emits
modified endowment contract so a huge benefit to all life insurance policies is that if you
do everything right structured properly all the growth accessing all the money it's tax-free right
it's a safe tax-free area we can position our money and get to it at a time we can completely
ruin the plan if we trigger what's called the MEC any life insurance policy can become classified
as a MEC if it does what happens is that one the growth on the account is tax-deferred.
So that means the growth we do not pay taxes on it as an accumulated value however anytime
we access it what happens here is one and you have the gained only so we can't deduct it so
our cost basis is not taxed but the gains will be treated as ordinary income tax when we pull
the money out that's the first piece second piece is if we are under the age of 59 and a
half you've got that rule right age 59 and a half where we get hit with an additional
10% penalty tax in short we don't want to MEC it ruins the entire attractiveness of a cash
buy life insurance policy we've got to deal with taxes there's better things we can do with their
money in that situation. So how do we prevent them and right that's the big thing there so
every policy has what's called a MEC limit which is exactly what it sounds like it's a limit that
determines the maximum amount of total money one campaign to a policy per year before we trigger
a taxable event well most are not aware of is we can actually set that limit at any dollar
figure we want and if you want a 10 million dollar MEC limit you can have it. How you do
it is you're going to find that MEC Limit has a direct relationship to our age and total
death benefit, total amount of life insurance on a policy that view it in this respect it's
really the measuring stick that these guys view to determine if a life insurance policy is still
life insurance in their eyes or a pure taxable investment. We've got some other videos that
highlight how to manipulate that MEC limit up and down I will go through that more in the future
but more or less when we design a policy here's what we want to look at however much we want the
ability that's the keyword we might pay it in we might not but we say hey on a perfect - in a
perfect world scenario I want the ability to pay in $50,000 into a policy whatever dollar amount
that is we want to make sure really that our MEC limit is just been set there this way if a you're
in year one where you're a year 20 you say hey I came into a windfall I got a bonus at work I
got something I want to throw more money into my account you can do it if our MEC limit was set at
an appropriate figure where we can get that extra money into the account hope this helps, more to come!