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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75880  
Subject: Re: Hi gang... wow!!! Date: 9/17/2013 12:52 AM
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UNLESS* the automatically selected 'no lapse overloan rider' is in place ... the carrier waives any premium or other charges that the accuont cannot internally afford to maintain from its own yield.

Cool. Hungry shark that I am, I immediately thought about ways to game the system. Like fund an IUL with $1M and immediately borrow out $900K at 5.5%. Just sit tight and let the gains run to the long-term average of 8%, and collect (average) $80K gain less $50K interest, for $30K annual gain on $100K equity. That's, like, 30% CAGR. No possibility of margin call or policy lapse because of the OLP rider.
Sign me up!!

But I suspect that no company will let you fund an account with $1M and let you immediately borrow 90% of it.

Never heard of this OLP, but Google came through once again.
Ahhhhh, dang. Some gotchas that showed up (not all same source):
* The policy must have reached its 15th anniversary.

* The insured person must be at least age 75.

* The entire cost basis must be taken as partial surrenders. (I have NO idea what this means.)

* There is no charge for the rider...
* But ... If the rider is exercised, a one-time charge equal to 3.5%-5% of the account value is assessed.

* The loan value must be equal to or less than 99% of the policy cash value after the deduction of the one-time rider charge

* when the Overloan Protection Benefit in this rider is invoked,
(i) all values in the Investment Accounts will immediately be transferred to the Fixed Account and will continue to grow at the current Fixed Account interest rate. and
(ii) transfers from the Fixed Account will no longer be allowed.

* Exercising the OLP Rider may cause the policy to become a Modified Endowment Contract (MEC) subject to special rules regarding taxation.
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