Modified endowments were created in the Technical Corrections Act of 1988 (H.R 4333, S. 2238) in response to single-premium life (endowments) being used as tax shelters.

They are contracts with fewer than 7-level annual premiums, and are subject to more stringent tax regulations (tax code 7702, 7702A). They are also subject to IRA-like annuity rules (such as penalties for pre-death proceeds before age 59 1/2). If a life insurance policy is changed and then fits the seven-pay rules, it may then be redefined as a modified endowment.