The Overloan Protection Rider: Protecting Universal Life Policies from Lapse

While Whole Life policies are generally less prone to lapse due to their fixed structure, Universal Life (UL) policies face a unique risk: the risk of policy lapse due to excessive outstanding loans. The **Overloan Protection Rider** is specifically designed to guard against this vulnerability.

The Problem: Policy Lapse from Loans

If policy loans and accrued interest grow to exceed the total cash value of a UL policy, the policy can lapse. This lapse often results in the outstanding loan balance being considered taxable income, potentially creating a massive, unexpected tax bill.

How the Rider Provides Protection

The Overloan Protection Rider, once activated, prevents the policy from lapsing due to a zero or negative cash surrender value, provided certain conditions are met (e.g., the policy must have been in force for a minimum number of years, and the insured must be over a certain age).

• The Fix: Once activated, the rider freezes the policy, fixing the death benefit and preventing further loans or withdrawals, thereby saving the policyholder from a catastrophic tax event.

Disclaimer: This content is for informational purposes only and is not financial or legal advice. This rider is specific to Universal Life and is a safety net; careful policy management is always the best defense against lapse.