If a Life Insurance policy does not pass the 7-pay test, it will be deemed a MEC.

• A. 7-pay test
• B. Policy-lapsed test
• C. Premium test
• D. MEC test

Answer: (D)

The key idea is how the seven-pay test relates to MEC status. The seven-pay test checks whether the premiums paid in the first seven years are sufficient to fund the policy’s death benefit without letting it become a premature accumulation vehicle. If the policy fails this test, it is classified as a Modified Endowment Contract (MEC). That MEC designation is the result of applying the rule that governs such status, hence the option that refers to the MEC rule fits best. The other options don’t describe the mechanism at work: the seven-pay test is the test itself, while the notion of a policy-lapsed or premium test isn’t the standard criterion for MEC classification.