▁single - pre m ium ▁life ▁( end ow ments ) ▁being ▁used ▁as ▁tax ▁sh el ters . ▁The ▁Act ▁of ▁ 1 9 8 8 ▁established ▁the ▁ 7 - Pay ▁Test , ▁which ▁is ▁a ▁st ip ulated ▁prem ium ▁that ▁would ▁create ▁a ▁guaranteed ▁paid ▁up ▁policy ▁within ▁ 7 ▁years ▁from ▁policy ▁in ception . ▁ ▁If ▁prem iums ▁paid ▁to ▁the ▁contract ▁go ▁beyond ▁( i . e . ▁are ▁higher ▁than ) ▁the ▁prem ium ▁amount ▁st ip ulated ▁then ▁the ▁contract ▁has ▁failed ▁the ▁ 7 - Pay ▁Test ▁and ▁is ▁rec lass ified ▁as ▁a ▁Mod ified ▁End ow ment ▁Cont ract . ▁ ▁The ▁following ▁new ▁tax ▁rules ▁apply ▁to ▁Mod ified ▁End ow ment ▁Cont ract s : ▁ ▁Distribution s ▁will ▁switch ▁from ▁a ▁First ▁In ▁First ▁Out ▁( FI FO ) ▁basis ▁to ▁a ▁Last ▁In ▁First ▁Out ▁( LI FO ) ▁basis . ▁ ▁This ▁means ▁that ▁withdraw als ▁will ▁require ▁the ▁policy ▁owner ▁to ▁withdraw ▁tax able ▁gain ▁before ▁withdraw ing ▁un tax able ▁basis . ▁▁▁ ▁Policy ▁lo ans ▁will ▁be ▁realized ▁as ▁ordinary ▁income ▁to ▁the ▁policy ▁owner ▁and ▁could ▁be ▁subject ▁to ▁income ▁tax es ▁in ▁the ▁year ▁the ▁loan ▁is ▁made . ▁▁▁ ▁Distribution s ▁( e ither ▁withdraw als ▁or ▁lo ans ) ▁that ▁go ▁beyond ▁the ▁policy ▁basis ▁will ▁be ▁subject ▁to ▁a ▁ 1 0 % ▁penalty ▁tax ▁for ▁policy ▁own ers ▁under ▁the ▁age ▁of ▁ 5 9 . 5