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Infinite Banking Simplified

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.
Infinite Banking Explained

One thing that we’ve found here at I&E is that because “life insurance” isn’t really something that most folks talk about, most individuals end up purchasing either the first “type” of life insurance that is recommended to them (provided the price is right), or they end up purchasing the “kind” of life insurance that makes the most sense to them from the beginning.

And unfortunately…

This often means that the “insured” doesn’t actually purchase a policy that “best” meets their needs, they only ended up purchasing a policy that they “thought” was the best at the time!

As a result…

We’ll often get calls from folks who have purchased a life insurance policy from another life insurance brokerage that they’re not satisfied with and are looking to make a change.  In many cases, we can certainly help, however in some cases, the insured may have waited too long before realizing they had a problem and are now going to be stuck with the choices they made.

This is why…

We here at I&E work so hard to educate all of our clients on all of the different types of life insurance policies that may or may not be available to them so that when it actually comes time to applying for coverage, they know exactly why a particular policy is going to be the “best” for them.

Which brings us to…

Why we wanted to take a moment and try to “simplify” the concept known as infinite banking because when used in combination with a cash value whole life insurance policy, folks are often amazed at how beneficial these policies can be for them before and after death!

The problem is…

Unless you have an agent who fully understands how infinite banking works, and is willing to explain how it may or may not benefit you personally, understanding this concept on your own isn’t all that intuitive right away (particularly if you’ve already worked with another insurance agent who has no idea what infinite banking is!)

But don’t fret…

Because in the following article we will distill the infinite banking concept down to a bare bones explanation of the concept and how it works in conjunction with life insurance. If you want a deeper dive into the concept, please click on the highlighted words in the article.

You may also be interested in our infinite banking wiki.

Infinite Banking Explained

Infinite Banking is the concept of using your life insurance your personal bank.

It begins with a life insurance policy, although you can use other types of savings accounts.

Ideally, a participating whole life insurance policy from a mutual insurance company is the best policy to choose for infinite banking, primarily based on the guarantees inherent in whole life insurance and the focus of a mutual insurance on maximizing policyholder value.

The policy is designed so that you maximize cash value and minimize the death benefit, much to the consternation of life insurance agents, because this results in a much lower commission.

Paid-Up Additions

The maximization of early high cash value is achieved through the use of various riders, such as paid-up additions.

Paid-up additions allow you to shovel a ton of cash into your policy. You just have to make sure you do not overfund the life insurance policy and turn it into a modified endowment contract (MEC).

Once you fund your policy you can withdraw money up to your basis or borrow against the cash value. It is recommended that you borrow, rather than withdraw, so you can maintain your principal in your policy and continue to earn compound interest on the total principal.

Direct vs Non-Direct Recognition

Different companies use different methods to determine how they credit your interest and dividends. The two methods are non-direct recognition vs direct recognition. Non-direct recognition is favored among the infinite banking gurus, although some direct recognition policies may perform better.

You can use the cash value as collateral and borrow from your life insurance via a life insurance loan. You are essentially borrowing form the life insurance company’s general account. You are charged an interest rate. For example, some top mutual insurance companies are currently charge 5% to borrow.

Once you request a loan it can take 7-10 days for the cash you borrowed from the insurance company to transfer to your bank account.

Upon receiving your money, you can use the money for whatever you want. When utilizing the infinite banking concept as a strategy to build wealth you will want to “loan” money to yourself and pay yourself back. You choose the interest rate and terms. But the idea is that you are now collecting interest, rather than paying interest.

Pay Down Debt

If you have outstanding bad debt, i.e. debt that takes money out of your pocket, you can use your cash value life insurance to pay down your debt. As your cash value grows, you will have more and more money available to pay down your debts. This is somewhat akin to Dave Ramsey‘s debt snowball, except your money is earning interest in your whole life policy, while simultaneously being used to pay down bad debt.


I like to practice infinite banking with real estate. I will also look for beaten down dividend paying stocks that have a decent yield. You can also lend money or whatever other creative income earning ideas you can think of.

Then I use the income from my investments to pay back my life insurance loan. Over time the investment may appreciate. I can sell it or keep it depending on how I think the market will perform.

Creditor Protection

Some additional benefits of infinite banking using life insurance is that cash value life insurance may offer creditor protection in your state. Different states have different protections but some states treat cash value life insurance very favorably.

FAFSA Student Loans

Life insurance cash value does not show up on a FAFSA. I have policies on my kids for that reason, in addition to using the policy to teach them about money. Life insurance for children is a great tool to use to help your kids get a financial education, something that is severely lacking from our education system.

Social Security

You can use infinite banking as a life insurance retirement plan. Life insurance can be borrowed against in retirement. The cash you receive is not taxed. Further, it does not count against your social security check you receive each month.

Death Benefit

As you age, your infinite banking life insurance policy will grow. Your death benefit gets larger as you get older. If you die young, your beneficiary gets a tax free death benefit that avoids probate.

Infinite Banking Infinite Possibilities

Once you have a grasp of how the infinite banking concept works, the possibilities of being your own banker are endless. The basic idea is your life insurance policy is also your own bank. You borrow from the banker (you), to use the money how you want, either to pay down debt, purchase large ticket items or invest. You then pay yourself back, with interest. The more you practice this strategy, the more efficient you and your policy become.


At this point, even though we’ve tried to simply the infinite banking concept to its bare bones, we understand that you may still have a lot of questions.


You may fully understand it and already know that it’s just not right for you!  Which is fine, because here at I&E, we’re not here to “sell you” on the concept of infinite banking.  We’re not here to “sell you” on any type of life insurance.  All we’re here to do is help you understand what your options are and help you qualify of for the “best” life insurance policy at the “best” price, based on your unique needs and goals!

So, what are you waiting for?  Give us a call today and see what we can do for you!

1 comment… add one
  • Michael December 10, 2018, 3:19 am

    Does this concept make sense for someone in their late 50s or is it more beneficial for someone who is younger. I am soon to retire with a pension + a lump sum of cash and I’m wondering if this could work for someone who is in my situation.

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