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How Does Overfunding Life Insurance Work?

I can’t keep track of how many times I’ve been asked, “How does overfunding life insurance work?”

As this investment strategy gets more and more mainstream, this same question pops up again and again.

It’s been interesting to see the “most asked” question in my inbox evolve from: “Can I get the cheapest quote?” to “Can my policy earn interest?”

Getting the most coverage for the least amount of money was the overarching goal for so many, for so long. Now, most of my clients and prospects are seeking ways to get the best coverage AND the best long-term use of their funds.

So, let me answer this question and give some personal insight on why I’ve always been a proponent for this niche.

Overfunding Life Insurance: How Does It Work?

Put simply, overfunding your life insurance means you’re contributing more than the required premium. Any cash value above the required premium earns interest from the Insurance Company.

This cash value component accrues interest tax-free, and the Insurance Company provides guaranteed downside protection, just like your high-yield savings accounts, but better.

Many people purchase permanent life insurance policies exclusively for this benefit. They utilize it as a retirement vehicle in addition to their typical 401(k)s and IRAs.


Because unlike those plans, the income from your policy is 100% tax free. Let’s talk more about the benefits.

Why is Overfunding Life Insurance a Good Idea?

On top of traditional life insurance benefits like guaranteed financial support for your loved ones in the event of your death, overfunding life insurance offers several advantages:

Tax-free account growth and death benefits.

Generally, the cash value of a permanent life insurance policy isn't taxable, which means that your funds can accrue more quickly. Similarly, after your death, your life insurance benefits transfer tax-free to your beneficiaries.

Protection from losses due to market volatility.

Regardless of how the market performs, your policy will not lose value due to negative market conditions.

No yearly caps.

In most plans, overfunding your life insurance policy does not have an annual cap for your contributions. Therefore, you can contribute quite a bit to offset any taxes you anticipate paying out of your other plans when you retire.

Who Should Overfund Life Insurance?

There are many people for whom it makes sense to overfund life insurance policies.

  • Individuals who've not started yet or started retirement savings later in life. Overfunding life insurance may be an ideal option for those who have delayed retirement planning and now need to set aside as much money as possible to catch up.

  • Individuals who need early access to funds. For those who need to withdraw funds for retirement or other expenses, unlike other fixed policies, overfunding life insurance may make sense because it increases the amount of money available from your policy.

  • Individuals looking for tax benefits. For those looking to grow their accounts without incurring income taxes on the interest, overfunding life insurance can offer such tax benefits.

  • High Net Worth Individuals. Those who've already maxed out their 401k contributions may want to overfund life insurance as an alternative retirement savings plan.

How Does Overfunding Life Insurance Work?

For those seeking to protect their wealth while generating additional retirement income, overfunding life insurance is a great option!

Here are some basic steps we follow at Enhanced Funding Solutions to help our clients maximize IRR on their life insurance:

  1. First, we study our clients' current and long-term financial goals to determine and obtain a life insurance policy that aligns accordingly.

  2. Next, the client contributes a fixed amount toward the policy for up to 10 years. This amount usually starts at $35,000 or more a year.

  3. Then, we use the life insurance policy as collateral, and a lender enhances the clients' contribution. This significantly increases the cash value of the policy, translating into more returns.

Work with Enhanced Funding Solutions

Work with us and learn how leveraging this underutilized Enhanced Funding strategy can ensure that you're in the best financial position for growth.

To learn more about how Enhanced Funding Solutions can help make your money work smarter and harder for you, reach out any time: or 773-318-9608.



901 N Lake Destiny Drive, STE 380

Maitland, FL 32751


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