Question #$20$ of $50$

Which of the following statements regarding modified endowment contracts $($MECs$)$ is TRUE?

A$)$ Early distributions from an MEC will be taxed under FIFO accounting rules, first as a distribution of premiums before consideration is given to any tax$-$free return of basis.

B$)$ To qualify as an MEC, a life policy must permit adjustable premiums.

C$)$ Distributions from an MEC before the insured is age $\frac{591}{2}$ will not trigger an additional $10\%$ penalty tax.

D$)$ An MEC is determined based on the premiums paid during a life policy's first $7$ years and the amount of cumulative level premiums that would have otherwise accumulated at any point in time during any of those first $7$ policy years under a $7-$pay policy.