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An endowment policy is a life insurance contract designed to pay a lump sum after a specific term (on its 'maturity') or on death. [ 1 ] [ 2 ] These are long-term policies, often designed to repay a mortgage loan, with typical maturities between ten and thirty years within certain age limits.
A modified endowment contract (MEC) is a cash value life insurance contract in the United States where the premiums paid have exceeded the amount allowed to keep the full tax treatment of a cash value life insurance policy. In a modified endowment contract, distributions of cash value are taken from taxable gains first as compared to ...
Endowment tax is the taxation of financial endowments that are otherwise not taxed due to their charitable, educational, or religious mission. Endowments can be up to several billion dollars at some universities , some charitable foundations , and some medical foundations.
Note: If the life insurance policy is a modified endowment contract (MEC), taxes are different. For tax purposes , withdrawals are on a last-in, first-out (LIFO) basis.
Section 7702 is designed to prevent abuses of the tax-advantaged nature of life insurance. It does so by imposing a two-pronged test on life insurance contracts. How the Section 7702 Test Works
The intention is that the payout from the endowment policy when it matures will be sufficient to repay the mortgage at the end of the term, and possibly create a cash surplus. Up to 1984 qualifying insurance contracts (including endowment policies) received tax relief on the premiums known as life assurance premium relief (LAPR).
Tax deductions for homeowners include mortgage interest, local and state property taxes and insurance premiums for home offices and investment properties. Not all of these qualify for a 100% tax ...
Cash value refers to an investment component in life insurance that grows tax-free over the course of the policy's life. Cash value is a part of permanent life insurance policies and is a living benefit that the policyholder can use during his or her lifetime.