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The Top 7 Advantages and Disadvantages of the Infinite Banking Concept

Fact Checked by Jason Herring & Barry Brooksby
Licensed Agents & Life Insurance Experts.
Insurance and Estates, a strategic life insurance provider composed of life insurance professionals, is committed to integrity in our editorial standards and transparency in how we receive compensation from our insurance partners.
Advantages and Disadvantages of the Infinite Banking Concept

Infinite banking is a concept created by Nelson Nash that focuses on how you can become your own banker using dividend paying whole life insurance.

Becoming your own banker means you use your whole life insurance policy as your personal bank, drawing money form it through withdrawals, or preferably, life insurance loans, and using the money your borrow from you life insurance to purchase income producing assets, specifically real estate.

An example of infinite banking would be as follows:

1. Fund a properly designed participating whole life insurance policy, focused on cash value accumulation versus death benefit.

2. Consider your whole life insurance policy as your own bank. The first step once your policy is in place is to capitalize your bank, so you have money from which to practice infinite banking.

3. Once your policy is capitalized, typically within one to three years, you can then begin to look for investment opportunities or large ticket purchases, such as vehicles. Investments can be anything where you get cash flow, but typically include real estate, loans, dividend paying stocks, oil wells, cacao farms, etc.

4. Once you locate an investment opportunity, you then borrow from your life insurance using your cash value as collateral. The life insurance company sends you a check or deposits money in your bank account, and you use the money to purchase the investment or big ticket item.

5. Once you have purchased the investment or big ticket item, you begin to pay yourself, using the cash flow from the investment to pay down your life insurance loan. Alternatively, if your purchase was a large ticket item, such as a vehicle, you create a payback schedule, charging yourself interest, to “refill” your bank, i.e. your whole life policy.

6. Once you have paid back your loan, and/or when another investment opportunity arises, you borrow against your whole life insurance cash value to purchase more investment opportunities or to pay down your own financial obligations.

7. While you are practicing infinite banking, you are also building up your cash value, which in turn is increasing your life insurance policy’s death benefit. Overtime, your death benefit will increase, so that as you age, your total death benefit payout to your beneficiaries will grow and grow, creating a financial legacy.

Bank On Yourself

Bank on Yourself, by Pamela Yellen, is her attempt at duplicating Nelson Nash’s concept, but she tweeks a few things to make it appear that she has moved beyond infinite banking to something more incredible.

In truth, she is advocating the same infinite banking concept as Nelson Nash did, only using more up to date numbers to do so, and focusing more on life insurance loans than withdrawals.

Best Infinite Banking Companies

The best infinite banking companies are going to be insurance providers that offer dividend paying whole life insurance.

Nash points out in his book, Becoming Your Own Banker, that it is not necessary to use life insurance to practice infinite banking. However, due to the tax favored status life insurance has, it is the best vehicle to use.

Currently, the the top 10 best infinite banking companies offering participating life insurance are as follows:

  1. American United Life
  2. Ameritas
  3. Foresters Financial
  4. Guardian Life
  5. Lafayette Life
  6. Mutual
  7. New York Life
  8. Northwestern Mutual
  9. Ohio National
  10. Penn Mutual

Why are these companies the best for infinite banking?

Simply put, these are the best dividend paying whole life insurance companies in the U.S. Each of these companies is also a mutual insurance company.

A mutual insurance company is differentiated from a stock insurance company, in that a mutual insurance company allows the policyholder to become a part owner in the company.

Further, unlike stock insurance companies, like MetLife, where the focus is on maximizing shareholder value, mutual insurance companies focus on maximizing policyholder value. This makes mutual insurance companies more long term focused, as the value is placed on sustainable, long term growth.

The Advantages and Disadvantages of the Infinite Banking Concept

Most of the pros and cons of infinite banking are directly tied to dividend paying whole life insurance in that the whole life policy provides several benefits unique to a whole life policy.

1. Tax Favored

Whole life insurance cash value is tax favored. That means the cash value accumulation in your policy grows tax deferred.

And if you access the cash value via life insurance loans, you may never have to pay taxes on your gains as long as your policy remains in force.

2. Fixed Premiums

Whole life is unique among permanent life insurance in that the premiums are fixed for the life of the policy.

So whether you choose whole life to age 121 or a limited pay whole life policy, your premiums will never increase.

3. Fixed Death Benefit that Increases

Whole life insurance provides a guaranteed death benefit.

A huge pro of infinite banking is that a properly designed policy focused on cash value growth also grows your death benefit.

That way, as your cash value grows, so does your death benefit payout to your beneficiary. And the longer your policy has to grow, the greater the death benefit payout in the end.

4. Cash Value Growth

As mentioned above, the cash value in your policy grows tax deferred. It cannot be understated how truly remarkable your policy’s growth can be if you are not taxed on the growth.

Taxes account for majority of wealth destruction in this country, with interest owed coming in a close second.

If you could somehow manage to earn tax free interest on your investment it would put you way above the curve.

The benefit to whole life insurance is the cash value growth is income tax free as long as you do not withdraw more cash from your policy than the basis.

Further, as long as you access your cash value via life insurance loans, you may never pay tax on the cash value growth.

5. Non Correlated

Another pro of using whole life for infinite banking is that your policy is non correlated to the stock market. That means you will earn a return regardless of what the stock market is doing.

This is a huge advantage if you are planning on using your policy to supplement your income in retirement.

A negative year in the stock market can take a huge bite out of your retirement nest egg, but with whole life, you can rest easy knowing your retirement income is insulated from the ebbs and flows of the stock market.

6. Discipline is Required

If we had to point out a con to the infinite banking concept it would be that it requires discipline to execute.

But for those who choose to take the time and required diligence to make the concept work, it is a financially freeing pursuit.

7. Must Qualify For

Probably the top disadvantage of IBC is that to get the best whole life insurance you must qualify for the coverage.

The good news is we offer some great insight into what life insurance companies test for.

Further, qualifying for permanent coverage tends to be easier than getting term life, so that is another positive in favor of IBC.

Interested In Infinite Banking?

If you are interested in learning more about infinite banking please get in contact with an I&E representative who can help you take the next steps.

6 comments… add one
  • Ivan October 10, 2020, 12:30 am

    Can you implement The Infinite Banking Concept with an IUL?

    • Insurance&Estates October 10, 2020, 8:30 am

      Hi Ivan, thank you for the comment. Yes, you can use an IUL to practice IBC. However, one of the key principles of IBC is the guarantees unique to whole life insurance. So, if you want to practice infinite banking in its purest form, whole life is superior to a indexed universal life because it shifts the risk away from the policyholder and onto the insurance company. If you want more insight, I suggest you connect with our resident IBC practitioner, Barry Brooksby, at barry@insuranceandestates.com

      • Mike W June 15, 2022, 9:15 am

        I am interested in the IBC structure using Penn, please contact me.

        • Insurance&Estates June 20, 2022, 9:47 am

          Hello Mike, if Barry or Denise hasn’t already reached out to you, go ahead and request a call by emailing Barry at barry@insuranceandestates.com.

          Best, Steve Gibbs for I&E

  • Luis Valle October 30, 2020, 6:05 am

    Thank you for posting this review! Could you guys explain the rationale for the rating of these companies? What makes Ameritas #2 in this list? I saw another section of your website where the rating is different (https://www.insuranceandestates.com/top-10-best-infinite-banking-companies/).
    Why for instance, would Ameritas be a better option to go with rather than Penn Mutual, given that one is non-direct recognition and the other one isn’t? Is it the loan rate, the way the premium starts factoring in to the cash value, other reasons?

    • Insurance&Estates October 30, 2020, 9:09 am

      Hello Luis and thanks for commenting. Actually, the companies we’ve chosen are all top companies and the ranking is simply alphabetical. Penn is actually a preferred carrier for us currently due to great options and very strong performance.

      Best, Steve Gibbs for I&E.

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