What Is An Overfunded Life Insurance Policy? 
An overfunded life insurance policy is a Whole or Universal Life insurance policy -LRB- or variation of those , such as Indexed Universal Life -RRB- in which more premium is paid in than required to secure the death benefit . An overfunded policy will generate cash value faster , and can possibly increase the death benefit or dividends . People often use overfunded life insurance for tax favored income during retirement . There is the chance that you can overfund it too much and turn your policy into a Modified Endowment Contract -LRB- MEC -RRB- , which takes away the favorable tax treatment of life insurance . If you are going to overfund your policy , work with an experienced life insurance agent who can help you set up the policy to your maximum benefit . 