Washington Life Producer Practice Exam 2026 – Complete Prep Guide

In the context of a Modified Endowment Contract (MEC), the death benefit paid to beneficiaries is typically not subject to income taxation. This means that when the insured individual passes away, the death benefit is received by the beneficiaries free of income tax, which aligns with the general treatment of life insurance death benefits under the Internal Revenue Code.

While cash value growth within a MEC is taxable when accessed, and loans taken against the policy can also lead to tax implications, the death benefit is specifically designed to provide financial support to the beneficiaries without incurring a tax burden. Premium payments are not directly taxable events, yet they do not carry the same tax-free advantage as the death benefit itself when considering withdrawals or loans from the policy. Thus, it is crucial to recognize that the tax advantages associated with life insurance primarily protect the death benefit from income taxation.