An overloan protection rider is an optional feature in some universal life and indexed universal life policies that helps prevent lapse if heavy policy loans cause the contract to approach exhaustion of cash value later in life. Without such protection, a policy with large outstanding loans can collapse when charges exceed remaining value, triggering a taxable gain as all outstanding loan amounts become taxable in a single year. When certain conditions are met, the overloan protection rider effectively freezes or adjusts policy values and benefits so the contract remains in force and avoids a catastrophic taxable event. Typically, the rider must be activated at an older age, after the policy has been in force for many years and accumulated sufficient value, and there may be a charge when it is triggered.

In everyday planning, advisors consider an overloan protection rider when designing policies for retirement income or supplemental cash flow using loans. They explain that while policy loans can provide tax-advantaged access to cash value, aggressive borrowing without monitoring can drive the policy toward lapse in later years, especially if crediting rates underperform or charges increase. By including an overloan protection rider, clients add a backstop that can help preserve coverage and avoid sudden taxation on outstanding loans. Advisors review carrier guidelines for activation, such as minimum age, loan percentage of cash value, and required charges at election time. During annual reviews, they monitor loan balances and projected longevity, discussing whether and when to activate the rider if the policy is approaching critical thresholds. By understanding overloan protection riders, producers can more safely structure income strategies, communicate potential risks, and prevent unpleasant surprises for clients relying on life insurance as part of their retirement plan.