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Infinite Banking Concept Explained: Whole Life Insurance as Your Own Banking System

Updated 5/21/2024

What is Infinite Banking?

Infinite Banking is a cash flow management system using the cash value in a life insurance policy rather than traditional bank accounts. 

Instead of saving, spending, and replenishing cash in banks, IBC (the infinite banking concept) involves overfunding a Whole Life policy designed with custom riders and then borrowing against your continuously compounding cash value.

Deploying your cash flows through an infinite banking system rather than traditional banks can provide:

      • Lifelong tax-sheltering & tax-free access
      • Non-correlated growth every single year guaranteed
      • Protection against death, disability, & possibly even lawsuits
      • Continuous compounding of your cash value even while borrowing (this is BIG!)


See our simple video explanation about the simple science behind the basics of infinite banking below, or keep scrolling to find a table of contents for this extensive article on the concept.

Scroll below for a full clickable table of contents:

At Banking Truths we believe in providing education & modeling so you can decide if this strategy is a good fit for you:

  • Get all your questions answered
  • See the top policies modeled out
  • Never any pressure or hard pitches 

(Clickable) Table of Contents

Who is IBC Ideally Suited For?

Risk-averse investors who prioritize control and take a non-traditional approach to wealth-building tend to be most attracted to infinite banking.

Having helped and educated thousands of clients to become their own bankers with IBC for the last 17 years we’ve found that it especially resonates with:

    • Entrepreneurs
    • Real Estate Investors
    • Fiscally-Responsible Savers
    • Risk-Averse Retirees (and Pre-Retirees)

The infinite banking concept is a strategy to use Whole Life insurance to become your own banker

Once these types of investors understand how a properly-designed Whole Life policy can produce guaranteed growth, tax efficiency, and the ability to continuously compound liquid capital (even while borrowing), they often use infinite banking as the main hub for their incoming and outgoing cash flows.

How Does the Infinite Banking Concept Work?

Step 1 – Create Your Infinite Banking Structure

No, you won’t be opening your own local branch of a bigger national bank with infinite banking, but in a way you are by acquiring a participating Whole Life policy from a mutual company as your main banking mechanism.

Most infinite banking newbies don’t realize that when you set up one of the types of infinite banking policies, you actually become part owner in the underlying mutual insurance company, which are some of the highest rated and financially stable companies in the world.

In fact, during the Great Depression it’s documented that these mutual insurance companies bailed out failing banks long before the FDIC even existed.

Even today, we can look at the balance sheets of the 2 biggest banks in America to see that they have BILLIONS of dollars of their Tier 1 capital invested in life insurance policies taken out on their key executives (as seen in the 4 minute video below).

Why are major banks the biggest buyers of life insurance in America? For the same 4 reasons you’ll want to become your own banker with Whole Life:

    1. Guaranteed Growth
    2. Immunity from Taxation
    3. Liquid Access at Any Time
    4. Additional Protection Benefits
 

That’s why our tagline here at BankingTruths.com is “Don’t do what banks say…Do what they do!”

It’s very important that your policy is designed correctly by an ethical banking agent with your best interests in mind. Our commitment is to shop the very best policy options from multiple insurance companies the very first time so you don’t have to guess who to trust.

Book a call with one of our ethical experts to get educated about your choices today.

Step 2 – Seed Your Infinite Banking Whole Life Insurance with Reserves

Once you’ve customized your infinite banking policy structure to most optimally keep your liquid capital continuously compounding even while out on loan, you have to fill it with fuel.

You fund your policy with premiums to seed your own private bank with the necessary cash reserves to lend against.

New clients typically think of any kind of insurance premiums as just another bill where money will be leaving their pocket never to return again unless they file an insurance claim, but not so with Whole Life insurance for infinite banking.

A properly-designed policy will have a predetermined premium range where in any given year you can pay anywhere between the minimum and maximum to keep your infinite banking insurance policy solvent.

minimum and maximum premium payments

Contrary to popular belief, Whole Life’s base premium still builds cash value, but at a slower pace than overfunding into paid-up additions (PUA). Max-funding an infinite banking life insurance policy using this PUA rider will command bigger Whole Life dividends from the issuing mutual insurance company.

We realize all the different riders needed to optimize infinite banking life insurance. So we made this simple analogy video to help you better understand Whole Life’s various performance components using a race car analogy. After the animated analogy, the video shows several numerical examples with and without the different policy riders.

Hopefully, the video above gives you a better sense of how we customize a Whole Life policy for optimal performance and maximum flexibility. To learn more about infinite banking policy design tricks (and traps touted by other agents), download our starter guide to infinite banking below.

Step 3 – Funneling Cash Flows Through Your Infinite Banking System

You can actually start using your infinite banking policy in as little as 30 days from when it was originally funded with the initial premiums.

To be clear though, many infinite banking promoters make IBC sound like some kind of quick sugar high, whereas it should be thought of as more of a long-term super food that gets better with continuous usage.

Here are the ongoing cash flows to and from your infinite banking policy:

    • You contribute min-max premiums as reserves for a minimum of 7 years
    • The insurance company credits guaranteed interest of at least 2%-4% each year
    • Mutual companies ALSO pay non-guaranteed dividends (160+ year dividend-paying history)
    • You take loans against your policy when cash is needed for strategic investments or major expenditures
    • Your entire cash value balance continues collecting interest and dividends (even on the borrowed money)
    • You pay down loans from your maturing investments or from your monthly pay to increase future borrowing capacity
    • You earn tax-sheltered compound interest on a increasing balance while paying simple interest on a decreasing balance
 

There’s literally an infinite number of ways to profitably employ the funds from your infinite banking insurance policy, but the 5 most common reasons people borrow against their own bank:

    1. Their Own Business Ventures
    2. Real Estate Investments
    3. Private Lending Notes
    4. Major Expenditures
    5. Long Term Stocks


Here is infinite banking visualized: 

Infinite banking is a system of cash flows through a permanent life insurance policy to become your own banker

Deploying your incoming and outgoing cash flows through your own bank can create a whole other profit center in your life that keeps compounding on your behalf as you build wealth. 

Think of infinite banking Whole Life as the beating heart sending and receiving liquid capital through your various veins.

About Infinite Banking Loan Options

Let’s address the elephant in the room, that dirty little 4-letter word… LOAN.

Are infinite banking loan really debt if they're backed by Whole Life insurance cash value

People naturally have a knee-jerk reaction whenever hearing the words loan, borrow, or especially debt. However, to be considered “in debt” means you have more loans you owe than assets you own. If you are truly “in debt”, you borrowing against your future earnings and hopefully servicing the debt with your ongoing income.

When using infinite banking loans to buy more assets, you still maintain a positive solvency, and are in an especially good financial position if the assets you borrow for are appreciating and/or cash flowing nicely.

Remember how I said that continuous compounding is the most important ingredient of the infinite banking concept? Borrowing against your infinite banking life insurance policy is exactly how you maintain the compounding of your cash flow and liquidity while still funding major expenditures, emergencies, and other investment opportunities.

You see, if you withdraw rather than borrow from your infinite banking Whole Life insurance policy, you would be removing assets that could’ve kept compounding on your behalf. The longer you let compounding work for you the better it gets, especially at the upper-right-hand side of the graph. By pulling cash value from your infinite banking policy, you rewind your compound curve to a lower position, not to mention you stunt future growth by receiving a smaller cut of any future dividend pools.

Conversely, if you borrow against your Whole Life’s continuously compounding cash value, you never miss a beat on that steepening compound curve while maintaining your place in line for those bigger future dividends.

Becoming your own bank with Whole Life insurance loans can even beat paying cash.

Regardless of all the gimmicky rhetoric you’ll read/hear about “paying yourself back the interest,” this is the true scientific explanation of how infinite banking works. It may feel like you’re paying yourself back interest, but that’s because you’re earning compounding interest on an increasing balance while paying simple interest on a flat or decreasing balance (assuming you’re minimally servicing the loan).

When borrowing using an infinite banking systems you have multiple loan options in addition to the using Whole Life’s built-in policy loans. One of the most often overlooked advantages of setting up an infinite banking policy is the optionality to shop for the most efficient loan option.

Using Whole Life's Built-In Policy Loan for Infinite Banking

The built-in loan provision contractually embedded into every infinite banking Whole Life insurance policy is the most common type of IBC loan popularized by the late Nelson Nash’s book. He correctly pointed out that you had more privacy with a policy loan than you would using any sort outside financing from a traditional bank. Plus, Whole Life policy loans are guaranteed to be extended without any sort of credit check.

Also, Whole Life policy loans are also the most flexible since they are technically held against death benefit. Therefore, there is no set loan term where a policy loan can be called by the insurance company since it will be paid off at death. 

As long as you have enough cash value collateral to support the loan, no payments are technically due ever. That being said, it is wise to service your infinite banking policy loan with at least interest-only to essentially pay simple interest on a flat balance while earning compound interest on your increasing cash value balance. Paying down the policy loan principal reduces future loan interest as well as increases your capacity more for future opportunities and expenditures.

So if you prioritize either loan flexibility or privacy, then a policy loan will be the way to go.

Premium financing loan rates will certainly rise and fall throughout the life of your premium financed life insurance policy.

One of the downsides of using built-in whole life loans is that the borrowing process can sometimes be a bit cumbersome to initiate. Some carriers require manually requesting it through your insurance agent or the the insurance company’s direct phone line. However, more carriers are creating automated systems to request securely loans online. Even this can still be somewhat inefficient when taking multiple loans from insurance policies written on different family members.

Regardless, once policy loans are initiated, you can set up scheduled auto-draft payments for however much you want whether the payment handles interest-only or any level of loan principal you want to pay down. As stated earlier, you can also totally float the loan without any payments for as long as you want as long as your loan doesn’t exceed a 95% loan to value ratio with your cash value.

At this particular moment in time, policy loans do offer cheaper money than most outside loan options, but as you can clearly see there have been large swaths of arbitrage opportunities using other types of loans (discussed below). 

The nice thing about using Whole Life insurance as your banking hub is you always have the built-in policy loan option available to you, while still being able to shop more efficient borrowing options to achieve positive arbitrage. 

Let’s discuss these other infinite banking loan options…

Combining Outside Loans with Infinite Banking

One of the greatest misconceptions about infinite banking is that you must funnel all loans through your policy to make it stronger. That’s because Nelson Nash’s book showed examples with a direct recognition policy which will pay higher dividends on loaned money when borrowing.

The truth of the matter is you should almost always opt to borrow cheaper money if you can get it while keeping the cash value in your infinite banking life insurance as backup equity. Consider the advantages attained by using outside loans:

    • Less Ongoing Loan Drag
    • More Capacity if Further Loans Are Needed
    • The Untapped Cash Value Policy Can Service The Outside Loan if Needed
 

Keeping your maximum loan capacity is huge since you must continuously qualify for outside loans, but you always are entitled to an infinite banking life insurance loan. 

Think about it…

During 2008-2009 HELOCs were often frozen and banks weren’t lending to practically anybody. If you had already tapped the equity in your Whole Life you couldn’t take advantage of the biggest fire sale in either the real estate market or stock market. Worse yet, if you needed cash flow for your own business you would’ve been screwed.

An infinite banking life insurance loan can never be denied unlike a car loan or HELOC

Not so if you would’ve taken advantage of the outside loan opportunities first, even if they were at slightly higher rates. Get it?

So, where can you sometimes get these outside loans?

    • Car dealerships
    • 0% interest promotions
    • Student Loan Programs
    • Home Equity Line of Credit (HELOC)
    • Retirement Plan Loans (401k/403b/457)
    • Margin Loan Rates at Certain Online Brokerage
 
Keep in mind too, that some of these outside loan options may also be tax-deductible, which can bring down a higher loan rate to an effective rate lower than any type of policy loan.
 
If you want to learn to apply the principles of infinite banking with other loan options and asset types to maximize compounding while minimizing taxes and loan drag, check out this webinar replay about “4-D Banking.”
 

Turnkey Cash Value Line of Credit (CVLOC) Programs for IBC

There are a number of traditional banks offering a turnkey line of credit programs specifically for Whole Life policies keeps growing every year.  

Why?

Because these Cash Value Line of Credit programs collateralized by infinite banking life insurance are some of the safest loans that traditional banks ever make. These loans actually help banks more safely diversify their loan portfolio since are allowed to practice fractional reserve lending (loaning out multiple dollars for every dollar they have in deposits). 

That’s why most CVLOC programs only accept Whole Life policies from the biggest, oldest, and strongest mutual companies around. So certain infinite banking life insurance from mutual holding companies won’t even have the option to use an outside line of credit. Using the policy loan will be the option available.

“But wait! Isn’t the infinite banking concept about getting away from banks?”

It never was actually. Did you really think the insurance company would issue you a policy loan with bitcoin or a suitcase of small-unmarked bills?

Whole Life insurance companies won't send you cash for infinite banking loans

Any infinite banking insurance company is going to send loan proceeds via ACH deposit to a connected bank account or at the very least a check you must bring to an actual bank.

Since banks will still be involved in your infinite banking strategy at some level, why not use traditional banks for what they are best at…a convenient conduit for money transfers.

Since banks will still be involved in your infinite banking strategy at some level, why not use traditional banks for what they are best at… a convenient conduit for money transfers.

Infinite banking is definitely about REDUCING your dependence on banks, since there savings rates are taxable and always below the rate of inflation. Plus as the late Bob Hope said, “A bank is a place that will loan you money…if you can prove you don’t need it.”

So think about it… if you can prove you don’t need their loans by showing them you have Whole Life cash value from the top mutual companies, certain lenders will offer very favorable cash value line of credit programs since they are all competing against each other for your business.

This is where you can continually shop for arbitrage opportunities. One of my business owner clients put it perfectly, “You mean when those business bankers try and get me to take their loans, I can say ‘Well you better sharpen your pencil, buddy’!”

Again, arbitrage opportunities have been available for most of the last 40 years by using these turnkey line of credit programs vs. any insurance company’s policy loan. In fact, many programs offer CVLOC’s at Prime minus 1% vs. the Prime minus 0.5% as shown in the graphic below.

It just so happens in this “inverted-yield-curve” environment that policy loan rates are lower than most CVLOC programs, but different banks keep offering specials. Also, notice the whenever the orange line has spiked above the blue line, it doesn’t tend to last very long. Position yourself accordingly. 

Remember the 3 advantages of the built-in Whole Life policy loan?

    1. Privacy
    2. No credit checks
    3. Ultimate payment flexibility
 
Well certain CVLOC lenders don’t report the line to credit bureaus nor require you to pay interest-only (even though you probably should when you can).
 

What other advantages do these turnkey CVLOC’s offer for infinite banking policy loans:

    • You can combine multiple family policies into a single line of credit for ease of use.
    • You can borrow up to 95% of your aggregate family cash value within 24 hours after a few clicks
    • Most CVLOC lenders offer free wires, free ACH to your checking account, as well as a convenience checkbook
    • CVLOC programs have offered rates substantially lower than Whole Life policy loans for most of the last 4 decades
 
Again, having an infinite banking whole life insurance policy gives you the optionality to shop for better rates and more convenient access. This puts a new spin on Bob Hope’s wise words, “A bank is a place that will loan you money if you can prove you don’t need it.”
 

Becoming Your Own Bank uses Whole Life Insurance

However, if at any time the bank rates are not better than your built-in infinite banking policy loan rate, you can always roll the bank loan back into your policy loan.

Direct vs. Non-Direct Recognition Loans and “Synthetic Non-Direct” with a CVLOC

On another note, using a CVLOC is a way to create your own “synthetic non-direct recognition loan” even if you have a direct recognition policy.

Many infinite banking agents swear that only a non-direct recognition Whole Life policy should be used, but nothing could be further from the truth. In fact, throughout the book Becoming Your Own Banker: The Infinite Banking Concept, all the examples Nelson featured were using a direct recognition company.

Infinite Banking Example of an Old Guardian Direct Recognition Life Insurance Policy

So what gives?

The truth is that direct recognition policies often pay higher dividends than non-direct recognition policies since they can be fair to all policyholders. Also, direct recognition gives you backstop protection in a rapidly rising loan environment. In fact, that’s why Nelson was able to show that an infinite banking Whole Life policy that borrowed paid higher dividends than the same policy with no loans.

The difference between direct and non-direct recognition loans is quite a complex subject beyond the scope of this article, but you can learn more about it in our extensive article on the matter at BankingTruths.com/Direct.

I am of the personal belief that it’s optimal to opt for the best performing infinite banking life whole life insurance you can get (often direct recognition both now and 30+ years ago when Nelson wrote his book). Direct recognition gives you a backstop subsidy of sorts in case Whole Life loan rates spike against you, like the last time inflation reared its ugly head in the 1980s.

Then you can always shop for the most optimal loan arbitrage opportunity, not just from CVLOC lenders, but from other loan outlets you likely already have access to.

Debt Consolidation Using Infinite Banking Life Insurance

Oftentimes the infinite banking concept is pitched as a panacea for helping people get out of debt.

Although this may work in certain situations, for the most part, we found that starting an infinite banking insurance policy may delay the client’s primary goal which is to knock out the most cancerous of their consumer debt ASAP.

Infinite banking can sometimes be misused with debt consolidation

There’s no getting around the fact that the first years are the worst years when it comes to starting infinite banking whole life insurance. If someone intiates an IBC policy instead of knocking out high-interest consumer debt, they are essentially financing their new policy at those high interest rates.

This may be good for the agent, but rarely will it be beneficial to those in debt.

On the other hand, if someone can see the light near the end of their debt tunnel, and they could fully “refinance” any egregious debt through the first year’s cash value, then this may be a case for starting an infinite banking Whole Life insurance now. Otherwise, they should really just throw all their financial resources towards knocking out cancerous consumer debt.

The only insurance recommendation we can make in good conscience would be to start a convertible term policy which can be easily converted into infinite banking whole life insurance after the worst debt is taken care of. Most people aren’t aware that a convertible term product is an option where someone can lock in their health today for a future banking policy while providing death benefit protection for loved ones ASAP.

On the other side of the debt spectrum, if you only have low-interest auto loans, deductible mortgages, HELOCs, and business debts that are deductible, then it can absolutely make mathematical sense to strategically start an infinite banking insurance portfolio custom-fitted for your situation.

Grab a slot on our calendar for a free custom consultation where we can help you engineer these types of advanced cash flow strategies through an optimal policy.

Infinite Banking Pros and Cons

The pros and cons of infinite banking are constantly thrown around the internet by 1 of 2 polarized sources. The opinions you’re hearing seem to be hype or hate from either:

    • IBC agents trying to sell a Whole Life policy
    • Other types of “financial gurus” touting their product/strategy of choice
 
You obviously have to consider the source and their agenda when evaluating their opinion on either the benefits or problems with infinite banking.
 
Below is a simple table that hits on the most common infinite banking pros and cons:
 

In the sections below, we plan to provide a deep dive with some balanced context into all of the infinite banking pros and cons we could find throughout the internet.

FULL DISCLOSURE: we at BankingTruths.com cannot be totally immune from bias since we help clients design and build optimal infinite banking life insurance policies for their unique situations.

That said, we always take an educational approach and let clients determine if the benefits outweigh the costs with infinite banking. 

By having a daily flow of clients reaching out to us from the internet, we don’t feel to pressure anybody, sugarcoat things, or mislead people into thinking the infinite banking concept is too good to be true.

With that, below is our detailed account of all the infinite banking pros and cons you’ll find, along with our added educational context. 👇

Benefits & Pros of Infinite Banking

Compounding of Borrowed Funds in an IBC Whole Life Policy

One of the biggest benefits or pros of infinite banking is the ability to earn continuous compounding on borrowed funds.

Having one dollar continuously compound safely within your infinite banking Whole Life policy while out on loan for your other wealth building efforts is by far the most powerful component of IBC. 

Earning compound interest inside premium financed life insurance while paying simple interest on your premium financing loan.

Being able to have $1 doing triple-duty wearing many hats (both offense & defense) while getting multiple bites of the apple, is what most clients find appealing. A properly-designed infinite banking policy helps them build up even more tax-exempt liquid capital than they would otherwise have for future expenditures or investment opportunities.

Guaranteed Loan Provision (while still growing inside an IBC policy)

Another huge pro or benefit of infinite banking is the ability to convert your compounding asset into cash on short notice.

Sure, you can also borrow against your brokerage account, real estate, or 401k but none of these are guaranteed to be available to you when you may need them the most. If the sky is falling and buying opportunities abound, stocks often lose value eroding your margin borrowing power, home equity lenders revoke their lines, and you may get laid off which would trigger a 401k loan repayment request due in 90 days.

Also, none of these assets are guaranteed to keep growing while you’re borrowing, unlike with Whole Life insurance. This is exactly why the amount you can borrow from these other sources is far less than the 95% loan to value ratio allowed with an infinite banking life insurance policy. 

Learn how to combine an array of different assets and loan options (you may already have access to) to take infinite banking to the next level by maximizing compounding while minimizing loan drag and taxes.

Guaranteed Growth + Dividends of an Infinite Banking Whole Life Policy

Non-correlated growth is another huge benefit of the infinite banking concept. How a properly-designed Whole Life insurance policy grows is probably one of the most popular pros of infinite banking, and there’s actually 2 distinct ways this happens.

Whole Life insurance provides a contractual guaranteed growth rate (2%-4%) as well as an interest-sensitive annual dividend (which is not guaranteed). However, the oldest and most solvent true mutual companies can boast they have paid a dividend for the last 160+ years through depressions, recessions, inflation, deflation, and world wars. A couple of the oldest mutual companies were even around to pay Whole Life dividends during the Civil War!

See how an old infinite banking Whole Life insurance policy from the 1980s did against double-digit saving account rates during the last time we experienced hyperinflation.

The video above also demonstrates how the effective growth rate inside an Whole life insurance policy is essentially enhanced by its immunity from taxation, which brings us to the next benefit of infinite banking.

Tax-Exempt Status of IBC Insurance

As seen in the video directly above, the tax benefits of infinite banking really depend on how high your marginal tax bracket is. The higher your income, the more powerful this benefit of infinite banking becomes.

 If you’re in a combined 33% federal + state tax bracket you would need to earn 7.5% in a taxable high yield savings account to equal 5% in an infinite banking life insurance policy. Keep in mind that tax rates are already set to go rise for everybody once Trump’s Tax Cuts & Jobs Act sunsets at the end of 2025.

Whole Life and IUL helps avoid the higher tax brackets which will sunset back to 2017 levels in 2025

So if Congress doesn’t meet to change things, then everybody’s taxes will be going up. Keep in mind that usually when Congress meets to change tax rates, it rarely gets better. Plus, I can think of a reason, or two, or 34 Trillion reasons why taxes will have to go up for everybody. As our national debt continues swelling, the tax benefits of infinite banking may end being one of the biggest pros of infinite banking there is.

Besides the steady growth, the other reason why major banks park billions of their Tier 1 capital into corporate-owned life insurance is the tax-exempt nature of the growth. Think of it as an IBC yield-enhancer of sorts because it’s not about what kind of interest you make, but what you can ultimately keep.

Furthermore, as tax rates continue to rise with our swelling national debt, an IBC insurance policy can help you optimize your other assets in retirement by better managing a dynamic distribution strategy. 

Whole Life and IUL can both be good investments in retirement because of their unique risk and tax profiles.

The above infographic comes from our detailed article on how to use whole life for a dynamic retirement income strategy.

The same article discusses how to monetize the death benefit in retirement, which brings us to our next benefit of infinite banking.

Death Benefit Utility of Infinite Banking Life Insurance

A Whole Life’s death benefit is probably one of the most overlooked pros of infinite banking.

As discussed in the section above, having a guaranteed tax-free death benefit can allow you spend down your other assets in retirement rather than take interest-only distributions or stick to the 4% rule.

It’s ironic how many clients initially tell me they don’t really care about the death benefit of their IBC policy, yet they also get sad when we illustrate reducing the death benefit in later years to enhance their cash value performance. Thankfully you can take a wait-and-see approach with this reduction option since it doesn’t need to be decided at the onset of the policy.

However, the more premiums you plan on pumping through your infinite banking system, the more death benefit the IRS will require to maintain the tax-exempt status of your Whole Life insurance policy.

Whole Life's death benefit makes all infinite banking loans tax-free

What if you could even tap into your tax-free death benefit even while you were living?

Certain infinite banking insurance companies have a provision allowing tax-free access to your death benefit if you are deemed too sick or hurt to function in the world by yourself. This is known as chronic illness/injury rider (often free to add on) that has the same triggers as a true Long Term Care insurance policy, which can be quite expensive.

Creditor Protection With Infinite Banking Life Insurance?

Another protection benefit that is often touted for the infinite banking concept life insurance is protection from creditors in the case of lawsuits. 

If you were to get sued, your high-yield savings account or brokerage account would be on the table for your creditors, but oftentimes your infinite banking life insurance cash value will be OFF-LIMITS to your creditors.

It’s worth noting that this is not determined by the life insurance company or any special IBC company you choose, but rather by the jurisdiction. Certain states provide full immunity from lawsuits for your life insurance cash value and death benefits, while some offer partial or no protection. Some states even offer protection from bankruptcy.

Creditor protection specialists will often tell you this arena is more art than science, and that the more layers of the onion you have, the better chance you have of protecting your assets from creditors & predators. Needless to say, we are not attorneys, so if you are seriously concerned about the specifics regarding the creditor protection of life insurance, you should seek competent legal counsel.

That said, we compiled a state-by-state guide for the creditor protection of life insurance. We do not guarantee its accuracy today since it hasn’t been updated in 5 years, but major movements in this area don’t happen very often. 

Your Whole Life policy for the infinite banking concept can sometimes be protected from creditors and lawsuits depending on what state you are in

Regardless, we listed the state-specific codes and statutes clearly, so perhaps they can act as a starting place for you to do your own legal research if you are in the DIY camp.

Ultimate Privacy using IBC

One of the biggest pros of infinite banking is hidden in plain sight…literally.

Some folks very much enjoy the privacy aspect of using Whole Life insurance for infinite banking. Unlike banks, brokerage accounts, and even LLC interests that show up on an asset search, Whole Life insurance does not since it’s considered a protection product primarily with the cash value being a secondary feature.

Also, any policy loans you take won’t show up on your credit report. Even certain outside lenders who offer turnkey line of credit programs tied to Whole Life policies for IBC consider it a cash-secured loan and therefore don’t report your balances to the credit bureaus.

Ok, enough about all the pros of infinite banking. 

What about the cons of infinite banking, its downsides, and the fine print other agents won’t tell you about?

Let’s dig into the dirt below 👇

Cons & Problems with Infinite Banking

Limited Early Liquidity with Infinite Banking Life Insurance (from Costs)

For most people, the biggest problem with the infinite banking concept is that initial hit to early liquidity caused by the costs. 

Although this con of infinite banking can be minimized substantially with proper policy design, the first years will always be the worst years with any Whole Life policy. 

Why is this?

LIMRA studies show that most policyholders don’t hold policies for more than 6-8 years. So infinite banking insurance companies structure their products so they can recover their fixed costs early on (underwriting expenses & infrastructure to service generations worth of polices).

With a properly-designed and max-funded Whole Life insurance policy, you will normally only have access to 70%-85% of your first premium payment after 30-days. However, there are certain infinite banking life insurance policies designed primarily for high early cash value of over 90% in the first year, but these types of policies will often substantially lag the best performing Whole Life policies somewhere between years 5-10.

Infinite Banking life insurance should have high early cash value

Contrary to popular opinion, the money missing from Whole Life’s first couple/few years doesn’t go down a black hole never to return. You actually get some substantial long-term benefits that help you recoup these early costs and then some.

Aren’t people ok with delayed-gratification when acquiring investment real estate or starting their own business? With these ventures, investors recognize they will endure some early costs and lack of liquidity for some extremely valuable longer-term benefits.

The same is true with a Whole Life policy designed optimally for infinite banking.

We recently made a video comparing Whole Life insurance and real estate investing where we clarify their cost/benefit tradeoffs while even quantifying the long-term return you get for Whole Life’s early fees.  

That being said, we find that this hindered early liquidity problem with infinite banking is more mental than anything else once thoroughly explored. This is especially true since their policy will have sufficient liquidity after 30 days not to mention most clients have other sources of liquidity they may not be aware of if they absolutely needed every penny of the money missing from their infinite banking life insurance policy in the first few years.

Mandatory Annual Payments Due With Whole Life Insurance

Fear of commitment often causes another mental block for people with infinite banking.

Although a Whole Life policy for infinite banking can be designed to be somewhat flexible, there will still be some level of minimum annual or monthly premium payment due for at least the first 7 years. Since most clients overfund their policies when they initially start them, theoretically they could actually skip premiums in the early years by borrowing against their cash value equity.

We’ve found that this mental fear of commitment often keeps prospective clients from exploring their payment options further. If they did, they would find out that the minimum mandatory premium payment due is only about 20%-30% of the maximum allowable premium.

minimum and maximum premium payments

We will discuss different workarounds and bands of flexibility available, but there is no getting around the fact that a minimum premium commitment is the only way you achieve the time-tested and stalwart guarantees of infinite banking Whole Life insurance. It’s because of this guaranteed premium due the first 7 years why infinite banking Whole Life insurance guarantees these 4 things:

      1. A guaranteed level premium if you want to pay past 7 years
      2. A guaranteed death benefit where the cost structure can’t be adjusted
      3. A guarantee that your cash value must equal this death benefit at age 121 if you live that long
      4. A guaranteed cash value glidepath that grows every single year and almost equals the death benefit by normal life expectancy


The guaranteed cash value of Whole Life and Paid-Up Additions constantly approaches the death benefit.

However, in order to maximize both early and long-term cash value performance of an IBC policy, you will want to pay as much premium as the IRS allows, especially in the early years. Once clients understand this, they usually structure a policy to where they know they’ll be able to easily cover the minimum under any circumstances, as well as most likely being able to hit the IRS’s maximum allowable limit under normal circumstances.

So really once clients reframe this initial fear of commitment, their policy due date becomes less of a problem with infinite banking and more of a privilege!

Indexed Universal Life (IUL) for retirement is ideal. This is because IUL allows for tax-free withdrawals up to basis and tax-exempt policy loans.

Keep in mind that in your worst-case scenarios, all Whole Life policies have a built-in feature called APL or automatic premium loan. That way, if for some crazy reason you couldn’t at least pay your IBC policy’s minimum premium then the policy will automatically borrow against its cash value to pay it for you.

Even an APL increases the cash value of your infinite banking Whole Life life policy, which, of course, increases the amount you could borrow against, which gives you some extra cushion for flexibility.

Qualification Hurdles of an Infinite Banking Whole Life Policy

Unlike most financial products where you can simply point and click to purchase them or just show up at your local branch, acquiring infinite banking life insurance can be much more complicated. Favorably qualifying for an IBC policy will depend on your financial situation, your age, your hobbies, your driving history, your health, and even your immediate family’s health. 

This is only a con of infinite banking if you have a serious health or hobby issue that will stop you from getting a policy.

Before 5 years ago, there was literally no other product or transaction more complex and intrusive than buying life insurance. What other vendor wants your blood and urine before patronizing their business?

Thankfully some of these stodgy old mutual insurance companies are starting to adopt advanced technology making the entire underwriting process quicker, simpler, and less intrusive. Most IBC life insurance companies have migrated to at least some sort of an electronic interface in their underwriting process. Some companies even have ultra-simple point-and-click underwriting where you securely enter your basic data into DocuSign while their artificial intelligence network scours multiple online databases. 

This new high-tech A.I.-underwriting process does away with the need for a lengthy paper application, not to mention a 20-question call-center phone interview, or the literal poking and prodding of a paramedical exam.

These hybrid life insurance policies can also protect against long term care concerns

To be clear, even the most technologically advanced insurance company still reserves the right to revert to traditional underwriting if they don’t like what they find online. But many of our clients with clean health histories often pass A.I. underwriting with flying colors after just a few clicks. We’ve even had their ideal infinite banking life insurance policy fully issued with the highest rating in as little as 24 hours later.

So for most people, the need to qualify medically will not be a problem with infinite banking, but simply a 20-minute formality. 

As far as our clients with more complex issues and health challenges, I can tell you these 2 things:

    1. Don’t disqualify yourself: remember with infinite banking we’re always trying to shrink wrap the least amount of death benefit around whatever cash contribution you’re comfortable with. Even if your health rating comes back sub-optimal, the IRS will allow us to use much less death benefit than someone who is younger and healthier.
    2. Don’t over-exaggerate or over-complicate your situation. It’s true that it’s not as simple as buying a stock online, but this shouldn’t stop you from maximizing a lifetime’s worth of growth on your safe and liquid assets. It may be more work for the agent to help you navigate an acceptable rating, but a savvy group of infinite banking agents (like the Banking Truths Team) can anonymously shop a complex fact pattern to multiple insurance companies who may be willing to unofficially compete for your business before subjecting you to traditional underwriting.


Book a call with an infinite banking agent to discuss Whole Life as your own bank

Learning and Maintaining the Discipline Needed for IBC

This alleged problem with the infinite banking concept will ironically be the gateway to all the pros and benefits of infinite banking. 

It’s human nature to get attached to old patterns of behavior and the status quo. So it can be difficult for some people to adopt the process of overfunding an insurance policy only to subsequently borrow against it whenever funds are needed. Also, it can be downright counterintuitive to think of your annual insurance premium as anything other than a pesky bill for a necessary evil cost rather than a limited privilege allowed by the IRS to shelter your savings from taxation while it’s safely growing to increase your future purchasing power capacity.

Change is never easy when it’s new. However, we find like with many other valuable processes in your life, once you get into the swing of things it becomes second nature especially as you start to reap the benefits and see the power of infinite banking along the way.

Is the Infinite Banking Concept Legit or a Scam?

The infinite banking concept is indeed legit. IBC is not a scam. However, many people do get scammed after buying a poorly-designed Whole Life insurance policy to act as the primary engine for their own private family bank.

To be clear, infinite banking is simply a system for continuously compounding your liquid capital by borrowing against it rather than depleting it when making strategic investments or major expenditures. In fact, this same methodology can be used with assets other than insurance products, but Whole Life is often the ideal foundation due to its: 

    • Safe & Steady Growth
    • Embedded Tax Immunity 
    • Guaranteed Flexible Loans
 

Where people feel like they’ve been scammed is after buying a Whole Life policy with lackluster performance. These questionable policies are often from second rate companies and usually without the optimal combination of riders, which substantially enhances performance by lowering the cost of the death benefit.

Contrary to popular belief the insurance agent’s commission is largely determined not by how much premium you pump into your infinite banking policy, but rather by how much permanent death benefit the premiums buy. When the bulk of your premium goes towards overfunding, the high commissions inherent in a traditional Whole Life are substantially watered-down.

Again, how their infinite banking policy is designed often determines whether people they got scammed or not. Click to download The Starter Guide to Whole Life for IBC on PDF so you can be knowledgeable about how best to design infinite banking Whole Life as your own private bank regardless of who you work with.

Who Started the Infinite Banking Concept?

“The Infinite Banking Concept©” was originally coined in the 1980s by the late Nelson Nash. Nelson would later popularize IBC with his book The Infinite Banking Concept – Becoming Your Own Banker.

However, long before Nelson Nash’s work was published, it is documented that famous entrepreneurs like Walt Disney,  Ray Kroc, and J.C. Penney used Whole Life insurance as their own private bank to either start, grow, or save their respective businesses. 

The infinite banking concept was practiced by Walt Disney and JC Penney long before Nelson Nash wrote about it in his book "The Infinite Banking Concept - Becoming Your Own Banker"

I had the pleasure of speaking to Nelson Nash early in my career. He revealed how the infinite banking concept came to him as an epiphany while lying in a hospital bed with heart trouble.

As you would expect, so much has changed in terms of insurance product innovation, overall interest rates, and infinite banking optimization strategies combining different asset classes and loan options.

Learn the latest infinite banking innovations in this webinar replay on “4-D Banking.”

Even though Nelson’s early cannot be used a strict owner’s manual for modern-day IBC tactics, I do honor his discovery and am inspired by how he has helped myriads of people for over 40-years now.

IBC Alternatives Other Than Life Insurance Products

Can other assets work for infinite banking besides life insurance products?

Yes, but no. Keep scrolling for an entire section discussing using IUL for infinite banking.  However, here is a grid showing the the good, bad, and the ugly of all infinite banking alternatives along with detailed descriptions below:

Infinite banking concept alternatives to Whole Life insurance

Borrowing against Stocks/ETF on margin can be a very management-intensive way to do private banking, not to mention risky and with less available liquidity. Normally, you can only borrow against 50% of your stock’s value using margin. If your equity value falls below this threshold, then a portion of your stocks will be liquidated at the low point. Also, since your best investment opportunities will often come when markets are down, you ideally want your private banking assets to be non-correlated to equity or real estate markets if possible.

With municipal bonds, you can often borrow up to between 50%-75% of their value. However, bonds, in general, are facing headwinds since they lose market value and available equity as interest rates rise. Why would anyone give you full price, locking themselves into your old lower-yielding bonds, when they can buy newly issued bonds paying a higher yield? Did you know that even some of the safest of bonds (which don’t yield much) have been known to lose value when the stock market tanks, since people fear repayment risk by the issuer? Even though this drastic loss of value may only be temporary as fear pervades in the marketplace, these periods are again your best opportunities to use your own private family bank for other investment opportunities.

A home equity line of credit (HELOC) is NOT guaranteed to be available like a life insurance policy loan. In fact, I personally had a home equity line of credit revoked from under me in 2009 when global credit markets tightened. Counting on a HELOC as an emergency fund or hoping to leverage it into other real estate when prices are falling can be downright unreliable.

A 401k loan is not even in the same ballpark as infinite banking because you are no longer borrowing against steadily compounding assets. You actually must remove your mutual funds from the market to borrow those funds from your retirement. So again, when markets are down you must liquidate assets at a low point to buy discounted stocks or real estate using a 401k loan.

Premium finance life insurance agents can help you get a favorable approval.

Also, there is no payment flexibility because you technically must pay yourself back monthly with interest over 5 years. Keep in mind too that when you pay this interest, you must pay with after-tax dollars back into the 401k where they will be taxed again when withdrawn in retirement. To make matters worse, if you lose your job during the normal 5-year loan period then the entire loan would come due within 90-days, or else you’ll be taxed along with a 10% tax penalty for an early distribution.

To be clear, a 401k loan can be useful as the ultimate backstop emergency account. IUL loans and margin loans can also present an interesting opportunity when pairing them with life insurance loans as your main banking hub for more complex infinite banking strategies. However, as a stand-alone loan option, the 401k does not measure up to using Whole Life loans for the infinite banking concept.

Can Indexed Universal Life (IUL) work with IBC?

Indexed Universal Life or IUL as it’s known is often a point of contention amongst infinite banking agents. Most will adamantly insist that Whole Life is absolutely the only product that can work for IBC. I used to blindly subscribe to this popular opinion out of fear of being shamed by my peers. However, after genuine curiosity and thorough analysis a decade ago, I determined that Indexed Universal Life (IUL) can work for infinite banking simply because:

    • IUL is still considered a fixed insurance product, not a security
    • Indexed crediting is paid from the insurance company’s general account
    • There is a floor of 0% during bad market years (minus the cost of insurance)
    • You can often borrow somewhere between 85-95% of your IUL cash value


However, you would be sacrificing the certainty of Whole Life’s guaranteed growth and locked cost structure for the POTENTIAL of higher long-term returns with IUL. Also, unlike with Whole Life, IUL companies reserve the right to increase mortality costs at any time, which can put your entire infinite banking strategy at risk.

Indexed Universal Life can safely grow your liquid reserves on your way to retirement

Truth be told, the potential growth of IUL used to be a lot higher than what you could earn from Whole Life just 5 years ago, when IUL caps were much higher. Most IUL policy caps were between 11%-13% while tracking the S&P 500 index with a floor of 0% (less the cost of insurance) in bad years. Nowadays, you’re lucky to have a cap of 9.5%, which obviously doesn’t get hit every year.

Yes, interest rates are starting to rise again which will increase the budget an IUL company has to buy S&P 500 options supporting higher caps, BUT interest rates aren’t the only determinant of options pricing. So too is market volatility. If the stock market is expected to be volatile for some time, this will increase the price of the options, which will put pressure on the possibility of substantially higher IUL caps despite rising interest rates.

Most Indexed Universal Life (IUL) policies track the S&P 500 Index on it's way up without realizing any losses from market downturns

What I did personally was start my own infinite banking strategy with a firm foundation of Whole Life and then later added layers of IUL. There were of course double-digit crediting years when I loved my IUL. However, during those bad market years when I actually lost some ground due to IUL’s cost of insurance plus loan interest. I sure did love the steadiness of my Whole Life insurance for infinite banking during those times, and sometimes wished I would’ve just bought more infinite banking Whole Life insurance.

If you’re still curious about the pros and cons of IUL you can check out our detailed article here.

Are IBC Insurance Premiums Due Every Year for My Entire Life?

No, despite its namesake, you do not need to pay premiums for your whole life if you don’t want to. 

To be clear, most Whole Life policies are structured to pay premiums until age 100, although others have accelerated payment schedules like a 10-pay policy, 20-pay, or Whole Life Paid Up at Age 65. Regardless, any infinite banking Whole Life insurance policy from every single company offers the contractual right to elect the Reduced Paid-Up non-forfeiture option (RPU)

Once you elect this Reduced Paid-Up status, the insurance company will shrink-wrap a fraction of your total death benefit that is considered fully paid-up given how much premium you’ve paid. Once you choose RPU, you can no longer pay additional premiums, but your now smaller Whole Life policy is then devoid of all mortality charges and the cash value is still guaranteed to grow every year from that point onward.

Another option to stop paying premiums is to do what’s called a “premium offset” or “vanishing premiums” where you maintain your full death benefit and have your policy pay its own base premium through dividends and possibly by sacrificing paid-up additions.

You do not need to decide on doing RPU vs. Premium offset when you start your policy. This can be a game-time decision that can be made whenever you are ready to stop paying premiums. 

With infinite banking life insurance you can do reduced paid up or premium offset

Infinite Banking Concept Example

This new infinite banking concept video course provides detailed mathematical examples of taking IBC loans from a Whole Life policy in this rising interest rate environment.

The IBC example video course does the math on how efficient borrowing and paying interest for your policy loan can be over decades.

Obviously, the most relevant example would be to book your own banking custom consult so you can see one using your own true-to-life policy design and premium numbers. However, this infinite banking example will give you some idea of how the numbers of IBC can look.

We also take an actual IBC example policy from 1980 and show what happens to the actual dividend payments as they rose and fell way lower than they were originally illustrated.

Process For Starting Your Own Infinite Banking Insurance Policy

Unlike other financial products that can be initiated with a simple point & click transaction, buying infinite banking whole life insurance is a much more involved process, unfortunately.

The extra time needed to acquire the product may be a good thing because properly executing the infinite banking strategy often requires a major shift in adapting your mindset and financial behaviors.

We’ve summarized the different onboarding phases below so you understand what you’re getting into.

[This summary is taken from our comprehensive “Starter Guide to Whole Life for IBC”. Downloading this thorough PDF guide will certainly help you be more knowledgeable regardless of who you end up working with.]

Choosing an IBC Agent to Work With

Choosing your infinite banking agent can be one of the most important decisions you make in this process. You should be able to count on your agent to do the following 5 things:

    1. Give you factual information about IBC & Whole Life
    2. Help you choose the best mutual company or companies
    3. Design your infinite banking Whole Life insurance optimally
    4. Help you reroute inefficiently allocated assets cash flows to maximize IBC
    5. Be there in the future to service your policy and answer your ongoing questions

After all, this is why we as life insurance agents get paid. Most lone wolf agents aren’t incentivized enough by Whole Life renewals to properly service their clients. This is why we believe it’s important to deal with a team, so you have multiple points of contact if necessary.

As you probably realized if you have been on our mailing list, we leverage the same technology we use for marketing to also help service our clients and continue bringing them valuable information. However, we are also always available for a check-in call to update your infinite banking strategy and help with your insurance portfolio.

Learn more about our team, mission, and values.

Your Next Steps to Research Infinite Banking

Better Understand The Basic Concept of IBC
Better Understand Whole Life Products for IBC
Learn More About How IBC Borrowing is Different
Whole Life Arbitrage with Synthetic Non-Direct Recognition

Final Thoughts on IBC

The Infinite Banking Concept is one of the most heavily-promoted and also misunderstood strategies using Whole Life insurance. Yes, it can be complicated, but so are most financial strategies if you think about. Some you are just more familiar with. Hopefully this deep dive has helped to clarify things so you can now take your learning to the next level.

In terms of financial strategies to simultaneously keep your liquid assets safe, but also growing while staying immune from both taxes and market losses, nothing else compares. However, the fact that you can keep your liquidity continuously compounding while simultaneously utilizing it for expenses, emergencies, and promising investment opportunities is what really sets the infinite banking concept apart.

I encourage you to use the rest of site as a free learning resource, and you can always apply to book a meeting with our team to see if it would make sense for us to work together in bringing this strategy to life for you and your family.

John “Hutch” Hutchinson, ChFC®, CLU®, AEP®, EA
Founder of BankingTruths.com

John “Hutch” Hutchinson has no affiliation or association with any of the following and does not feel compelled to do so since he is a published life insurance authority, policy design geek, and a multi-faceted accredited financial strategist: 

  • The Infinite Banking Concept®, The Infinite Banking Institute, Nelson Nash, nor his book Becoming Your Own Banker – Unlocking the Infinite Banking Concept
  • Bank on Yourself, Pamela Yellen, nor her book The Bank on Yourself Revolution

* “The Infinite Banking Concept®” is a registered trademark of Infinite Banking Concepts Inc.

** “Bank On Yourself®” is a registered trademark of Hayward-Yellen 100 Limited Partnership.