Given the current economic climate, some insureds may be seeking ways to supplement their income by using their life insurance policy as a source of cash flow. It is important to recognize that taking loans can have unintended risks, such as taking too heavy a loan, causing the policy to be in danger of lapsing. The potential taxes* due when a “loaned-on” policy lapses are not appealing, but what protections are in place? If the policy has an Overloan Protection Rider, that may help prevent the policy from lapsing. When an OLP Rider is exercised, it shuts down the policy, stops premium payments and disbursements, and freezes the policy at a set death benefit.
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