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If a life insurance policy is deemed to be a Modified Endowment Contract, the policy loans will:

A. Be taxed on a last-in-first-out basis.
B. Not be allowed.
C. Be taxed on a first-in-first-out basis.
D. Not be taxable.



Answer :

GinnyAnswer

Final answer:

MECs are subject to specific tax rules, with loans being taxed on a last-in-first-out basis.


Explanation:

Modified Endowment Contract (MEC) is a specific type of life insurance policy that has different tax implications. When a life insurance policy is deemed to be a MEC, the policy loans will be taxed on a last-in-first-out basis. This means that the policyholder will have to pay taxes on any policy loans based on the most recent gains first.


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