Free tool · illustrative
A permanent life policy becomes a Modified Endowment Contract (MEC) if you pay in more than the "7-pay" limit during its first seven years — which changes how withdrawals and loans are taxed. Enter your carrier's 7-pay limit and your planned premium to see whether a level premium stays inside the line.
Estimate
Within the 7-pay limit
At a level premium you have $2,000 of headroom per year. Paying this amount evenly across the first seven years keeps cumulative premiums under the 7-pay limit.
Assumes an equal (level) premium each year. Lump-sum or uneven funding must be checked year by year, and material changes can restart the 7-pay period.
The IRS 7-pay test compares the premiums you actually pay in the first seven policy years against the premiums needed to pay the policy up in seven level annual payments. Cross that cumulative limit and the contract becomes a MEC — gains come out first and are taxable, and loans or withdrawals before age 59½ can carry a 10% penalty.
The 7-pay limit is specific to your policy's face amount, product, and issue age, so it comes from the carrier's illustration — not a generic formula. This estimator compares your own figures; it is not a substitute for that illustration or for advice from a tax professional and your insurer.
Illustrative estimate only — not tax, legal, or insurance advice. Confirm your 7-pay limit with your carrier and consult a qualified advisor before funding a policy. See our tax & insurance disclaimer and MEC explainer.
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Pocket-CFO includes MEC estimates next to cash, runway, and tax planning for $49.99/month.
