What benefit is NOT subject to income taxation under a Modified Endowment Contract (MEC)?

A Modified Endowment Contract (MEC) is a type of life insurance policy that has specific tax implications, particularly concerning the benefits it provides. The death benefit of a life insurance policy, including a MEC, is typically received by the beneficiaries free from income taxation. This means that when the insured person passes away, the death benefit paid out is not subject to income tax, providing a significant advantage for policyholders looking to leave a financial legacy.

When it comes to the other benefits associated with a MEC, such as cash value accumulation, loan proceeds, and withdrawal amounts, they can be subject to income taxation under certain circumstances. For example, if the policyholder withdraws cash value or takes out a loan against the policy, the tax treatment can vary and may lead to taxable amounts, especially if the policy is classified as a MEC. Therefore, understanding the tax implications of each benefit is crucial for policyholders planning their financial and estate strategies.

In summary, the death benefit under a Modified Endowment Contract is not subject to income taxation, making it a vital component for those considering the tax efficiency of their life insurance planning.