Infinite Banking Concept Explained: Whole Life Insurance as Your Own Banking System
Updated 11/6/2023
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 up and spending cash in banks, IBC practitioners instead overfund a Whole Life policy and borrow against it to maintain compound interest.
Utilizing the infinite banking concept (also known as IBC) rather than traditional banks provides:
- built-in tax-sheltering
- steady growth as a noncorrelated asset
- various protection benefits (death, disability, & lawsuits possibly)
- continuous compounding of your cash value even while borrowing.
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 Created the Infinite Banking Concept?
IBC was originally created 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, it is documented that famous entrepreneurs like J.C. Penney, Ray Kroc, and Walt Disney used Whole Life insurance their own private bank to either start, grow, or save their business long before Nelson Nash’s work was published. As you would expect, lots has changed in terms of insurance products, interest rates, and optimization strategies for infinite banking over time.
I had the pleasure of speaking to Nelson Nash on the telephone early in my career. He revealed how infinite banking system came to him as an epiphany while lying in a hospital bed with heart trouble. Even though I don’t utilize Nelson’s early text as a strict owner’s manual for modern-day IBC tactics, I do honor his work and am inspired by his discovery which has helped myriads of people for over 40-years now.
Does the Infinite Banking Concept Work?
The infinite banking concept can indeed work quite well assuming the following:
- Your Whole Life policy is optimally designed with certain riders
- You max-fund your policy as early and often as is allowable
- You make regular loan payments as often as you can
- You seek to utilize your best loan option available
- You expand the strategy as cash flow allows
Why use Infinite Banking Whole Life Insurance?
Similar to how big banks have both savings and lending capabilities, so too does a participating Whole Life insurance policy. Whatever taxable savings rate big banks pay to their depositors pales in comparison to what they’ll charge you to take a loan for the exact same amount.
At a traditional bank they may call you a customer, but have no illusions. You are the product!
Conversely, mutual insurance companies are actually owned by their whole life policyholders, hence the word mutual. So not only do you become a customer when you buy an infinite banking whole life insurance policy, but you also become part owner of the underlying insurance company.
These Whole Life policies offer guaranteed growth between 2-3% in addition to annual dividend payments, which aren’t guaranteed but have been paid every year for over 150 years by the strongest mutual companies. These dividends from an infinite banking policy often rise with prevailing interest rates you share in the yield of their entire investment portfolio. But underwriting profits from all their other insurance lines contribute to your dividend, which is why Whole Life even outperforms in low-interest eras.
When you elect to roll these higher dividends back into the policy, they become part of a new guaranteed cash value calculation. This would entitle you to a bigger cut of future dividend pools, which increases the future guaranteed cash value, and increases your cut of future Whole Life dividends, and so on. Projections for infinite banking Whole Life insurance today currently projects a long-term internal growth rate of between 4%-5%. Don’t forget that this happens in a tax-exempt environment so that may feel more like 6%-9% depending on your tax bracket.
Infinite banking whole life insurance can benefit greatly from the interest rate volatility we’re experiencing today. In fact, we did an entire study using an actual overfunded Whole Life policy from 1980. The study shows the policy’s initial dividend projections side by side with the actual dividends paid over the last 42-years. What’s interesting is how dividend rates spiked initially and then plummeted far below what was originally illustrated. Nevertheless, the dividends paid during the low-interest era were often more than double what was originally projected thanks to their continuous compounding after that early spike.
One problem with infinite banking is the inability to illustrate what happens to a Whole Life policy in a rising interest environment. However, our deep-dive into the last 42-years can demonstrate how an infinite banking policy responds to fluctuating interest rates for both dividends & loan rates.
Infinite Banking Policy Loans Basics
Let’s discuss an infinite banking “loan”, even though it’s often thought of as a 4-letter word.
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. 
Regardless of all the gimmicky rhetoric you’ll read/hear on how infinite banking works, this is the true scientific explanation of how infinite banking works.
Are there certain products, features, and ancillary strategies which can further optimize IBC’s compounding effect? Sure, but make no mistake about it, maintaining continuous compounding is by far the most important factor in how the infinite banking concept works.
I realize this probably leaves you with all kinds of detailed questions about how infinite banking loans work. If you want to get deep into the pros and cons of infinite banking paying interest, you should definitely check out our detailed study exploring the last 42-years of Whole Life loan vs. dividend rates.
We also discuss the different infinite banking loan options in more detail below in this article.
Is the Infinite Banking Concept Legit or a Scam?
The infinite banking concept is indeed legit. IBC is not a scam. However, many people feel as though they have been scammed after buying a poorly-designed Whole Life insurance policy to act as the engine for their own private family bank.
To be clear, the infinite banking concept is not even something you can buy. It’s simply a methodology of redeploying dormant savings accounts plus ongoing cash flows through a life insurance policy to create continuous compounding on these funds even if they’re borrowed.
So even if you do buy a lackluster Whole Life policy (which hopefully you don’t), IBC will still work, only you want to have as much access to capital early on, and the positive compounding will take longer to kick in. But make no mistake about it, borrowing against your cash flow and liquidity to keep it continuously compounding rather than having it be spent and lost forever is NOT a scam.
Since you are always in control of your policy’s cash value equity, the only way to really get scammed would be if you borrowed against your policy to make a bad investment, but that would be a problem with your investment choices and not a problem with the infinite banking concept itself.
Again, how their infinite banking policy is designed often determines whether people they got scammed or not. Click to download The Ultimate 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.
Infinite Banking Pros and Cons
The pros and cons of infinite banking are littered around the internet from either:
- IBC agents trying to sell a Whole Life policy
- Other “financial professionals” competing for the same dollars when selling their wares
In the sections below we plan to provide a deep dive with some balanced context into all of these infinite banking concept pros and cons.
Obviously we at BankingTruths.com are not immune from bias since our job is helping clients design and build Whole Life insurance policies optimized for infinite banking.
That said, we focus on an educational approach and let clients determine if the benefits outweigh the problems with the infinite banking concept.
The main benefit to having a daily flow of clients coming from the internet is the lack of urgency we 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 a liquid dollar wear multiple hats with your wealth-building efforts while continuing to compound safely within your infinite banking Whole Life policy is by far the most powerful component of IBC.
Guaranteed Loan Provision (while still growing inside an IBC policy)
Another huge pro or benefit of infinite banking is the ability to 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 for IBC, which 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. Understand how infinite banking policy loans differ from other types of loans including 401k loans.
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 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 150+ 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!
Most everyone seems conditioned to voluntarily forgo any kind of growth rate as long as banks will preserve their liquid capital. Meanwhile, many of the biggest banking institutions keep a large chunk of their Tier 1 capital reserves inside life insurance policies taken out on the lives of their key employees. That’s why our tagline here at BankingTruths.com is “Don’t do what banks say…do what they do!” Check out our 4-minute video examining the balance sheets of America’s 2 biggest banks to see how much life insurance they bought and why.
The main reason is that these policies provide big banks with a safe yield on their own liquid reserves backed by the oldest and most solvent financial institutions in America. It’s documented that many of these well-capitalized mutual insurance companies were a major force in bailing out banks during the great depression long before FDIC insurance even existed.
Tax-Exempt Status of IBC Insurance
The tax benefits of infinite banking really depend on how high your tax bracket is.
The 2nd 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.
Let’s say for the moment your infinite banking life insurance policy only ever provided a long-term growth rate of 4.5%, but your combined state and federal marginal tax rate is 33%. Assuming you could earn 4.5% from another yield-bearing account, you’d be left with around 3% net after paying your taxes. Put another way, you’d need to earn over 6.7% to net the same 4.5% you got from your IBC whole life insurance policy.
I understand you can find distressed junk bonds or private money loans that may earn more than 6.7%, but do they have a similar risk profile or available liquidity that Whole Life insurance has? I think not. Try this on for size…what if you funneled your cash through an IBC life insurance policy first before borrowing against it to do higher-yielding private money lending? That is the spirit of the infinite banking concept.
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. Check out our detailed video on how a properly structured infinite banking concept life insurance policy can act as a tax buffer in retirement.
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.
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.
It’s funny how many prospective clients initially tell me they don’t care about the death benefit of their IBC Whole Life policy, yet they also get sad when we illustrate reducing the death benefit in later years to enhance their cash value performance of their infinite banking life insurance. 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 cash you plan on pumping through your own private family bank, the more death benefit the IRS will require to maintain the tax-exempt status of your infinite banking life insurance policy.
If you also need death benefit to protect your family’s financial situation, you may be able to cancel, reduce, or “refinance” your term insurance policies after implementing an IBC Whole Life policy. Unlike Whole Life, term insurance is a straight cost with zero equity or growth. So if you’re able to recoup these lost dollars don’t forget to add that to the total return of your own infinite banking strategy.
What if you could even tap into your tax-free death benefit even while you were living?
Well, certain Whole Life companies have a provision allowing tax-free access to your death benefit if you are deemed too sick or hurt to keep functioning in the world without assistance. Obviously, nobody wants this, but bad things happen to good people without killing them. Certain insurance companies offer this pre-death access to the tax-free death benefit by utilizing the same tax code provisions that a long-term-care policy provides. Depending on the insurance company, this can be a paid option or sometimes even a free rider on the policy. Most clients wouldn’t normally purchase a long-term-care insurance policy (even though they probably should), but they nonetheless appreciate this added layer of protection.
Creditor Protection With Infinite Banking Life Insurance?
This particular pro of the infinite banking concept will vary depending on which state your policy is written in.
Another protection that is often touted for the infinite banking concept life insurance is protection from creditors in the case of lawsuits. 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.
Regardless, these state-specific statutes are listed clearly, and 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.
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 not everybody will tell you about?
Cons & Problems with Infinite Banking
Limited Early Liquidity with Infinite Banking Life Insurance
For most people, the biggest problem with the infinite banking concept is that initial hit to early liquidity.
Although this con of infinite banking can be minimized with proper policy design, the first years are always the worst years of any Whole Life policy. You see, Whole Life is a bundled product and insurance companies recover their expenses with front-loaded cost structures. This is mainly because according to decades of LIMRA studies the average holding period of permanent life insurance has consistently been less than 9 years. As a result, Whole life companies have stacked their products to benefit those who stick with them.
There will be an early hit to liquidity when starting an infinite banking life insurance policy. Normally you will only have access to 66%-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, but these will often substantially lag the best performing Whole Life policies in later years.
It’s interesting to me that this single problem with the infinite banking concept often keeps people from reaping the stacked longer-term benefits of IBC. Isn’t there a similar delayed-gratification phenomenon when acquiring investment property or starting a business? You inherently understand that you’ll endure some early costs and lack of liquidity for the extremely valued longer-term rewards.
Isn’t it ironic then that only Whole Life insurance is guaranteed to be a profitable venture and provide guaranteed liquidity all along the way despite the fact that consumers hold a higher level of scrutiny towards its temporary limitations in the early years.
Regardless, we find that it’s common for clients starting an infinite banking Whole Life policy to also have some kind of savings account that’s been sitting dormant for years possibly even decades. I’ll often ask them when the last time they’ve depleted more than 70% of this savings account, only to occasionally find out it’s been several years, but more often than not the answer is “never”.
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 enough ongoing cash flow coming from work income or investment property to replenish their low-yielding savings accounts.
Mandatory Annual Payments Due With Whole Life Insurance
Fear of commitment is the other mental problem with the infinite banking concept many people have.
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 5-7-years. 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 Whole Life policy for IBC.
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.
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!
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. Not coincidentally this increases the cash value of your infinite banking life insurance, which of course increases the amount you could borrow against in the future.
See where I’m going with this?
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.
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:
- 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.
- 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.
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.
Why Infinite Banking Whole Life Insurance?
The specifics of how and why an infinite banking policy is the ultimate way to become your own bank could be the subject of an entire website. In fact, it is… you’re actually on that site right now. Thankfully we’ve created an entire product page devoted to all the different features and riders that make infinite banking whole life insurance perform optimally.
Whole Life insurance is the only financial instrument that can produces these 7 outcomes making it the preferred vehicle for the infinite banking concept:
- Guaranteed safety of principal
- Guaranteed annual growth (plus fluctuating dividends)
- The best loan-to-value ratio for maximum access (95% LTV)
- All growth & loans are tax-sheltered (throughout the life of the policy)
- A locked-in cost structure that is guaranteed not to increase
- Backed by the oldest & most solvent insurance companies
- The issuing mutual companies are owned by their Whole Life policyholders
This combination of benefits can’t be replicated by any other financial product in existence, nor can it be cobbled together by pairing two traditional investment options like say bonds or dividend stocks inside a Roth IRA.
Is Infinite Banking Insurance a Good Idea?
Yes, it can be a good idea if an infinite banking whole life policy is designed with the right types of riders and funded properly. The reason why Whole Life insurance is commonly thought of as expensive or a ripoff is because that life insurance agent did not structure the policy for optimal cash value performance.
Contrary to popular belief the majority of Whole Life’s internal costs and agent commissions are NOT based mainly in how much premium you pay, but rather the amount of permanent death benefit it buys. Most of the exorbitant costs you hear about can be mitigated by your infinite banking agent shrink-wrapping the least amount of allowable death benefit around your desired premium contribution (according to the prescribed IRS limits).
Furthermore, installing the maximum allowable term insurance rider can not only bring down the overall cost structure (and agent commissions). At the same time this term rider also allows for the maximum amount of premium overfunding going towards the paid-up additions (PUA) rider. This rider acts as infinite banking’s turbo-charger of sorts since between 90-95% of your PUA premium goes straight to cash value while only 5-10% goes to buying the fully paid-up death benefit with that single PUA premium.
We recently published a 10-page Ultimate Guide to Understanding Whole life for Infinite Banking. It boils down 15 years of industry secrets into a single PDF. Whether you end up working with us or not it’s everything you don’t even know that you need to know about choosing the right insurance agent, Whole Life company, and combination of riders to make sure you’re getting the optimal infinite banking life insurance policy.
Infinite Banking Insurance Companies
For many reasons we strongly believe in choosing the biggest, oldest, and most solvent mutual companies regardless of how you customize your own personal infinite banking system.
First off, the biggest and oldest mutual insurance companies can boast the longest history of paying dividends throughout the various types of financial hardships that have plagued our nation throughout its history:
- Recessions
- Depressions
- Inflation
- Deflation
- And World Wars
In fact, 2 of the oldest Whole Life companies even paid dividends throughout the Civil War!
Also, many of the newer and lesser-known mutual holding companies aren’t approved for the turnkey Cash Value Line of Credit (CVLOC) programs. Since these lenders will give you loans up to 95% of your cash value, they want the most solid form of collateral backing everything.
Also, several of the most popular infinite banking insurance companies are actually mutual holding companies vs. a true mutual company.
Most infinite banking enthusiasts don’t even realize that a mutual holding company is a mutual company that has converted to a stock company structure. Even though they haven’t demutualized yet, they are structurally one step away from selling out and losing their mutual status.
Note: 2 Years ago, this actually happened to Ohio National, a major player in the infinite banking space.
Lastly, the old true mutuals often perform the best. This is not surprising because their agent commission rates are usually lower than with mutual holding companies.
Check out our article if you want a deep dive into what it means to be a true mutual company (vs. a stock company or mutual holding company).
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.
Different Infinite Banking Policy Loan Options
Let’s address the elephant in the room, that dirty little 4-letter word… LOAN.
People naturally have a knee-jerk reaction whenever hearing the words loan, borrow, or especially debt. However, to be “in debt” insinuates you have more liabilities owed than assets owned. Keep in mind, you can take a loan by borrowing against your assets and still be in a positive financial position using the infinite banking concept.
This is especially true if the asset you borrow against is guaranteed to grow every year like infinite banking insurance, and even better if you can toggle the loan rate to be less than the growth rate of your policy.
With that, let’s discuss 2 distinctly different infinite banking policy loan options:
Using Policy Loan for the Infinite Banking Concept
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 control and privacy with a policy loan than you would using outside financing from a traditional bank.
A infinite banking policy loan is also the most flexible since it is technically against death benefit and there is no loan term where the loan can be called by the insurance company. So 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.
This is a recipe for long-term financial success. Obviously paying down additional principal will only increase your borrowing capacity in the future.
The downside of infinite banking whole life insurance loans is that the entire borrowing process can be somewhat inefficient because you often have to call your agent or the insurance company directly to initiate the loan process (although certain carriers are implementing user-friendly technology to cut out this step). Also, if you have multiple family policies it can be cumbersome to request different sums from different policies, not to mention the fragmented repayment schedule of multiple infinite banking policy loans.
Last, policy loan rates have been less competitive than what you can get using outside lenders more often than not over the last 40-years.
Learn more about the last 40-years of policy loans compared to outside loan rates as well as Whole Life dividend rates in our recent study.
Cash Value Lines of Credit (CVLOC) Programs for IBC
There are a number of traditional banks that offer a turnkey line of credit program specifically for Whole Life policies from the biggest, oldest, and strongest mutual companies.
“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?
They’re going to send you a check or an ACH deposit to your bank account. Since banks will still be involved in your infinite banking strategy somehow, why not use them for what they are best at…lending & convenience.
Infinite banking is DEFINITELY about reducing your dependence on banks since they pay such paltry savings rates and will only lend you money if you can prove you don’t need it. But 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 have very favorable cash value line of credit programs.
Lending is their primary business after all. And part of how big banks justify not paying you a yield on your deposits is to offer you technological conveniences for transferring and tracking your funds. Fine, utilize the services banks offer, but do it as a shallow pass-through account rather than a long-term resting place for your liquid capital.
What 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 total aggregate cash value from all Whole Life policies
- Certain CVLOC lenders offer free wires transfers, free ACH to your checking account, and a convenience checkbook
- CVLOCs offered rates substantially lower than policy loans for the better part of the last decade.
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.
Remember the advantages of a policy loan for the infinite banking concept?
- Privacy
- No credit checks
- Ultimate payment flexibility
What if CVLOC vendors allow you the flexibility to roll your interest payment back into your loan rather than make mandatory monthly payments? What if they also considered CVLOC a cash-secured loan so your ongoing line didn’t even show up on your credit report? What if you could also request a credit line increase after paying new premiums so you always had access to 95% of your cash value.
Again, these cash value line of credit programs are not necessary, but they do provide added convenience for your infinite banking strategy as well as potential rate arbitrage, which can add up to a lot of additional compound interest over time.
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 with higher dividends and/or unique policy features you want.
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, all the examples you see throughout Nelson Nash’s book Becoming Your Own Banker: The Infinite Banking Concept were using a direct recognition company.
In fact, direct recognition loans have the ability to subsidize bigger dividends to policyholders with loans in rising interest rate environments, where non-direct recognition loans cannot. This is exactly why so many people believe there is some magic advantage to borrowing after reading Nelson’s book.
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 on our site at BankingTruths.com/Direct.
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 can be the case in certain surgical 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.
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 you could’ve used some of those premium dollars to knock out high-interest non-deductible consumer debt, then you are essentially financing your initial IBC policy acquisition at a very high rate.
On the other hand, if you can see the light near the end of your debt tunnel, and you can fully “refinance” all your egregious debt through your first year’s available cash value then there may be a case for starting some infinite banking Whole Life insurance now. Otherwise, you really should just throw all the resources you have into your consumer debt.
If that’s the case, the only insurance recommendation we can make in good conscience would be to possibly start a convertible term policy you can easily convert into infinite banking whole life insurance after the worst of your debt is taken care of. Most people aren’t aware that a convertible term product is even an option where you can lock in your health today for a future banking policy while providing immediate death benefit protection for loved ones.
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.
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:
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.
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.
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.
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 where I loved my IUL. However, during those bad market years where 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.
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.
Infinite Banking Insurance on Kids or Parents
Clients sometimes erroneously feel that stacking infinite banking whole life insurance policies on younger family members would be more financially efficient.
However, we disprove this myth in our video about Whole Life policies for kids vs. their parents.
Oftentimes you’ll find that infinite banking policies on kids will actually lag for several years before catching up to their parents’ performance. This is because for younger Whole Life policies to support the same premium the IRS requires substantially more death benefit.
Since the performance difference is often negligible then we feel much more comfortable starting with a policy on the breadwinner(s) first as well as non-working spouses, especially if their absence would cause a disruption for the family. If a non-working spouse passed away prematurely, the kids could potentially lose 2 parents – one to death and one to working overtime.
Only after covering both spouses do we advise proceeding with ancillary policies on kids and/or key employees to expand your infinite banking strategy.
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 “Ultimate 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.]
Researching Phase [Solo]
Banking newbs often scour the internet sifting through opinions to see if this infinite banking system is really worth the time and energy. They’re grasping for some sort of clarity, but often feel scattered, confused, & overwhelmed during this phase.
Co-Educating Phase [Together]
Together we ascend your learning journey by answering questions and filling in knowledge gaps on how the infinite banking concept really works. Clients then educate us about their situation so we can cement their conceptual learning using their own true-to-life numbers. Clients get AHA’s feeling excitement and relief as light bulbs go on.
Designing Phase
The Banking Truths team puts together multiple custom proposals from the top infinite banking insurance companies reflecting the details you shared with us in the prior meeting. Subtle and distinct differences in performance and features now become clearer for clients.
Underwriting Phase
Armed with your newfound knowledge, the first decision point is simply determining which mutual insurance company(ies) you feel will best support your unique infinite banking strategy.
(To be clear, underwriting is neither a contract nor an obligation. It’s simply an official request to the insurance company for a health rating so you can see accurate proposals.)
Refining Phase
Since life insurance companies take time to provide an accurate health rating we have time to concurrently educate and model different policy sizes and what-if scenarios for you. Usually your understanding of the infinite banking concept has progressed tremendously from prior meetings. So you are finally at a point to fully understand what cash flow sources you feel comfortable funneling through an infinite banking life insurance policy.
Funding Phase
Once the mutual insurance company declares a health rating, we meet to do final custom fitting with the policy you actually want to have issued. Your policy gets issued electronically 24-72 hours later where you can finally consummate the contract directly through the insurance company’s secure online portal.
Once their infinite banking Whole Life insurance policy takes effect, clients often feel a rush of excitement to embark on this new course of financial control with a tinge of nervousness since it’s still all so new.
Utilization Phase
The Banking Truths team is here to support you and just a click away.
Whether it’s updating payment schedules, requesting loans or withdrawals, updating beneficiaries, even transferring ownership (yes a policy is a piece of property), we are always just an email or a phone call away from a meeting. Plus we provide ongoing premium reminders and other strategic content that may help you expand your overall infinite banking strategy.
Our clients often feel bold and confident knowing they have a way to safely grow their wealth in a tax-efficient manner while staying liquid now while simultaneously building a unique buffer asset for retirement.
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:
- Give you factual information about IBC & Whole Life
- Help you choose the best mutual company or companies
- Design your infinite banking Whole Life insurance optimally
- Help you reroute inefficiently allocated assets cash flows to maximize IBC
- 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.
Your Next Steps to Research Infinite Banking
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.
Book Your Custom and Confidential Consultation
The Top 4 Myths Behind Becoming Your Own Banker (Article)
Learn How This Banking Concept Really Works (Video)
4 Ways Whole Life Insurance Can Help Your Retirement (Article)
Whole Life’s Riders And Growth Components Explained (Video)
Detailed Banking Case Study Using Whole Life Insurance (Video)
Best Whole Life Insurance Policy for Banking & Why (Article)
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.
