What is Overloan Protection Rider?
An Overloan Protection Rider is an optional add-on in certain Universal Life Insurance and Indexed Universal Life (IUL) policies designed to protect the policy from lapsing if the cash value is heavily borrowed against. When policyholders take substantial loans from the cash value of a life insurance policy, they risk reducing the cash value to the point where the policy could lapse, resulting in loss of coverage and possible tax implications. The Overloan Protection Rider ensures that even with significant loans, the policy remains in force.
This rider is activated once certain conditions are met, such as reaching a specific policy age or loan-to-cash-value ratio. By opting for this rider, the policyholder can prevent the termination of the policy due to over-borrowing, ensuring that the death benefit remains intact for beneficiaries. However, once activated, some policy features, like additional premium payments or further cash value growth, may be restricted.
For example, if a policyholder borrows heavily from their policy and reaches a point where the cash value is nearly depleted, the Overloan Protection Rider can keep the policy active, converting it to a status that maintains the death benefit without additional premium requirements.
This rider is particularly beneficial for individuals who plan to use their policy’s cash value aggressively as a financial resource and want the assurance that their coverage will remain secure, regardless of extensive borrowing.
