Life · Chapter 6 · Premiums
Minimum Deposit (Financed) Insurance
Definition
NOT an actual policy type — a funding strategy where the owner uses policy loans to pay premiums. Suited to high tax brackets. Under IRC §264(d), the interest on those loans is deductible only if at least 4 of the first 7 annual premiums are paid from funds other than borrowing (the 4-out-of-7 rule).
Exam tip
Don't confuse the two 7s. 4-out-of-7 (§264) = whether the loan INTEREST is deductible. The 7-pay test (§7702A) = whether the policy is a MEC. Failing 4-out-of-7 does not create a MEC.
Related terms