Which of these is NOT subject to income taxation under a Modified Endowment Contract (MEC)?

In the context of a Modified Endowment Contract (MEC), the correct choice refers to the death benefit. Under federal tax law, when a life insurance policy pays out a death benefit to the beneficiary, that amount is generally not subject to income tax, regardless of the policy's status as a MEC. This tax-free treatment applies as long as the benefit is received as a lump sum.

Other options, however, have different tax implications in the context of a MEC. For instance, policy dividends and withdrawals may be taxed depending on the amount and other factors, and loans against the cash value of a MEC can also incur tax liabilities if the policy is surrendered or lapses. This distinction emphasizes the favorable tax treatment associated with the death benefit in life insurance policies, reinforcing the importance of understanding tax implications when managing life insurance contracts.