Overfunding a whole life insurance policy can make sense if you plan to access its cash value later in life or if you want to manage your taxes and take advantage of certain tax benefits. While the Internal Revenue Code does not set a yearly limit on how much you can contribute to a life insurance policy, the Internal Revenue Code does limit how much you can pay into a life insurance policy before you incur adverse tax consequences. If you exceed this maximum limit, one consequence you may face is having your policy treated as a Modified Endowment Contract (MEC), which can lead to losing your favorable tax treatment.
If the policy is a MEC and there is overfunding, any loans or withdrawals will be taxed to the extent that there is gain in the policy.  In the event that the policyowner is under the age of 59 ½, any loans or withdrawals may be subject to an additional 10% tax.