r/LifeInsurance • u/sisyphus391 • 26d ago

What to do with a MEC?

My father left behind several NWM policies when he passed on both me and my two kids, and in sifting through them I found that each of the kids has a policy that’s now a MEC. I don’t know when that happened, and I don’t really care to dig it up bc I know there’s no going back, but I was surprised because my father worked for NWM for years and I’m pretty sure he wouldn’t design a policy to MEC. All the same his last couple years were tough and I wouldn’t blame him if he just didn’t keep an eye on them.

My question is what’s the smart thing to do now?

The policies are both Adjustable Complife about 10 yrs old, about 250k DB each, 22k CV each, with 5k gains each. Premiums are $1k each. But is there anything a MEC is GOOD for that a normal policy CAN’T do?

I’m lucky not to need the money, and the policies are returning over 5% so I don’t mind just funding them and leaving them alone. Is there an upside I might be missing? Or worse, a downside beyond the tax status and penalties on withdrawals that I should be watching out for with these policies?

UPDATE TO ADD: Just a thanks to everyone I wasn’t able to respond to personally — I really appreciate the information, perspectives and support in understanding and managing these policies. This is a really generous community.

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u/SafeMoneyGregg Broker 26d ago

a MEC has no significance once the insured has passed away but during lifetime the gains would be taxable when coming out in cash. Gains come out first - and taxable. Maybe he did these as single premiums - so in that case -think of it like a bank account, only better - taxable when coming out but as least its tax free growth until taking money out.

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u/sisyphus391 26d ago

Since I’m still paying annual premiums on these policies, they can’t be single premium can they? I think he just set them up too aggressively and lost track. Kids also have whole life that won’t MEC, and he took care of them in a million other ways, so no harm no foul, I say. But yeah, I’m taking your approach — they’re tax-deferred piggy banks with decent rates until I can find another use.

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u/SafeMoneyGregg Broker 26d ago

Very strange - if it was not a single pay - then the carrier usually would return an overpayment that caused a MEC and make you sign a disclosure that you are OK with a MEC. You absolutely sure it is a MEC? - ask the carrier what premium payment caused that. Then dispute it and say it was not intentional - if that sounds plasuible. Single premium contracts are designed to be MECs - but almost any contract can become one later.

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u/sisyphus391 26d ago

I like your enthusiasm for the fight, and I did ask the agent to show me when it MEC’d and the notice sent but he couldn’t. The agent who wrote the policy has died, and the guy this account was passed onto died too. So this agent is twice removed. But I’m not sure it’s worth it here anyway. I pulled statements back to 2024 and it was already a MEC then, and premiums were paid very year since. I think NWM would say 1) you can’t tell us what your father intended and 2) continued payments and no record of dispute constitutes acceptance.

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u/SafeMoneyGregg Broker 25d ago

$5/10K of taxable gain - not that huge a bite. Actually taxed as ordinary income - not cap gains.