The Infinite Banking Concept (IBC) redefines personal wealth management by turning high cash value whole life insurance into a powerful personal banking system. Originated by Nelson Nash, this concept moves beyond traditional savings approaches, offering a unique blend of benefits like tax-favored status, liquidity, leverage, and stable growth.
In this comprehensive guide, we share our experience and insights into the intricacies of designing an effective Infinite Banking policy, weighing its pros and cons against conventional banking, and exploring real-world applications in areas like real estate investments. We also share our 70 plus years of combined experience in selecting the best Infinite Banking companies, as we lay the educational groundwork for those aspiring to become their own bankers.
A Comprehensive Guide to the Infinite Banking Concept
Table of Contents
- Key Takeaways
- What is the Infinite Banking Concept?
- Designing a Proper Infinite Banking Whole Life Policy
- Comparing Infinite Banking with Traditional Bank Savings
- Pros of the Infinite Banking Concept
- Cons of the Infinite Banking Concept
- References and Examples
- How to Start Infinite Banking
- Best Infinite Banking Companies
- Conclusion & Next Steps
- Coined by Nelson Nash, the Infinite Banking Concept involves using high cash value whole life insurance policy as a personal banking system. It offers a tax-favored vehicle for financial management, distinct from traditional savings methods.
- A properly designed whole life policy focuses on early high cash value from a mutual insurance company, with the majority of the premium going towards paid-up additions. It may include a term insurance rider to pass certain tests and avoid classification as a modified endowment contract (MEC).
- Pros include non-correlation with the stock market, improved cash flow and liquidity, personal family financing, tax advantages, creditor protection, financial leverage, and privacy.
- Cons include potential cost prohibitions, mandatory annual payments, creditor protection variances, the need for discipline, qualification requirements, limited liquidity in the early years, and lack of diversification.
- Real-world examples and case studies illustrate the practical application of infinite banking, particularly in areas like real estate investing.
- Steps to become your own banker include gaining education, setting financial goals, consulting with a professional, choosing the right policy, funding the policy, using it to finance purchases, and repeating the process.
- The Infinite Banking Concept provides financial control but requires discipline, and redefining one’s relationship with money.
The Infinite Banking Concept, coined by Nelson Nash in his book Becoming Your Own Banker: Unlock the Infinite Banking Concept, involves using a high cash value whole life insurance policy as a personal banking system, rather than a traditional bank savings account. The whole life policy is designed to maximize cash value versus traditional whole life which focuses on death benefit protection.
This book [Becoming Your Own Banker] demonstrates that your need for finance, during your lifetime, is much greater than your need for protection. – N. Nash
The Infinite Banking Concept has taken on a lot of other names, such as cash flow banking, family banking concept, bank on yourself, perpetual wealth strategy, becoming your own bank, circle of wealth, and perpetual wealth system.
According to our experiences and that of countless others, the primary benefit of using life insurance for this purpose is it provides a tax-favored vehicle that offers contractually guaranteed growth for you to pass your finances through, acting as a wealth building conduit, rather than using a typical bank savings account or money market account where your gains are taxed, the interest rate is not guaranteed, and you cannot use your cash as collateral.
Here is our very own Barry Brooksby, an authorized Infinite Banking Practitioner, sharing real life examples based on his personal experiences with the infinite banking concept and how to be your own banker.
One of the main features that makes an infinite banking system possible is that you can use your specially designed whole life policy’s cash value as collateral, taking out a loan, to purchase cash flowing assets, such as investing in your business or real estate, while your cash value in your policy is still earning true compounded interest returns.
You then purchase cash flowing investments with your borrowed dollars, while simultaneously earning compound interest in your policy’s cash value account, making your money work for you in two places at once. You would then use your cash flow from your investment real estate or business to recapitalize your “bank” and repeat the process again and again.
The whole idea is to recapture the interest that one is paying to banks and finance companies for the major items that we need during a lifetime, such as automobiles, major appliances, education, homes, investment opportunities, business equipment, etc. – N. Nash
Is the Infinite Banking Concept a Scam?
ANSWER: NO, the infinite banking concept is not a scam. A scam is some sort of fraud, such as a Bernie Madoff Ponzi scheme. Rather, the Infinite banking concept is the strategy of using Dividend Paying whole life insurance from a Mutual Insurance Company as your own personal source of financing, allowing you to leverage your capital and have your dollars working in two places at once.
Unfortunately, most financial entertainers such as Dave Ramsey, and more recently The Money Guy, don’t understand the concept and call it a scam, as they bring wandering sheep back into the Wall Street fold, who do a cursory glance at it and dismiss it outright without ever actually understanding the concept.
Traditional whole life insurance policies would be designed so that the entire annual or monthly premium payment went towards the base of the policy, which focused exclusively on the death benefit. An infinite banking whole life insurance policy is designed differently,
A properly designed infinite banking policy uses high cash value whole life from a mutual insurance company. The dividend paying whole life insurance policy lasts your entire life is designed so that the majority of the annual or monthly premium payment goes towards paid-up additions. There are different percentages with which this is done, but the typical model is a 65/35 or 80/20 split. Depending on the client’s need will determine the best split of base and paid-up additions, with some people preferring a 90/10 split to get the most immediate cash value availability but perhaps sacrificing long term performance.
For many infinite banking policies, a term insurance rider will also be added. The reason for the term rider is to increase the death benefit in the short term, typically the first 10 years or less, so the policy is able to pass the 7-pay test and avoid becoming a modified endowment contract, or MEC.
Through our years of experience the most effective whole life policy designs for infinite banking are going to be blends of PUAs/Base of 60/40, 70/30, 80/20, and even 90/10.
Due to the whole life insurance policy being designed with a focus on the paid-up additions, rather than the base, the agent’s commission is going to be a lot less. And that is another huge benefit for the client, but it is also a reason many whole life insurance agents don’t design policies this way.
Direct vs Non-Direct Recognition
In his book, Nelson Nash recommended non-direct recognition companies for practicing the infinite banking concept but we have expertise in this area and many years of experience and we have found that companies offering direct recognition are often favorable. And whether a company is direct or non-direct is not a high priority on the list of importance. The most important thing is cash value growth and the right company.
Direct recognition indicates that the insurer acknowledges the existence of an outstanding loan and applies an alternate dividend rate to it. Whereas, non-direct recognition does not recognize an outstanding policy loan.
Depending on the insurer, this adjusted rate on the borrowed funds could be higher or lower. However, it’s important to note that you continue to receive dividends on the entirety of your cash value, irrespective of whether parts of it are borrowed or not.
One of the many benefits of dividend paying whole life insurance is the annual dividend payment. According to Nelson Nash,
If the owner uses the dividend to purchase Additional Paid-Up Insurance (no cost for acquisition, sales commissions, etc.) the result is an ever-increasing tax-deferred accumulation of cash values that support an ever-increasing death benefit.
Using you dividend to purchase paid-up additions further enhances your cash value and death benefit, helping to optimize your infinite banking policy.
Another thing to consider is where do your store your money. You may have your money in 401ks, IRAs, or investment accounts, but you most likely also have your money sitting in a bank. However, consider the following benefits of storing your cash in high cash value whole life insurance policy vs a traditional bank savings account.
|Traditional Bank Savings Account
|High Cash Value Whole Life Insurance Policy
|The national average yield for savings accounts is 0.58 percent APY as of Dec. 18, 2023 (*Bankrate, December 13, 2023).
But actual earnings are less after tax and not guaranteed.
|Guaranteed (average) 3% interest. Plus an additional 2%-4% dividends. Tax-free, so net earnings of 5%-7%, which may increase as interest rates increase.
|Withdrawals and Earnings
|Amount available for withdrawals is lower because gains in the account are taxable.
|Full amount of cash value is available for withdrawals.
|Does not offer loans.
Loan would have to be obtained through a bank or other lender.
|Loans are available via the cash value, with no approval needed. Plus, the amount borrowed still continues to generate interest and dividends.
|Amount and due date of repayments is determined by the bank or lender. If payments are late or missed, it negatively impacts your credit score.
|No required loan payments. Policyholder determines when and how much is paid - or even IF payments are made.
|Added Benefits Upon Death
|Paid on Death (POD) to a beneficiary.
|Death benefit is paid to beneficiary income tax free.
|~Chronic Illness Rider - With a chronic illness diagnosis or need for long-term care, funds may be accessed from the death benefit.
~Accelerated Death Benefit - Death benefit funds may also be accessed in the event of a terminal illness diagnosis.
~Protection from 3rd party creditors - In most states, whole life insurance is protected from creditors, lawsuits, and bankruptcy.
|Premium is required for death benefit. However, premium payments are leveraged for a larger death benefit payout - which is received income tax free by the beneficiary(ies).
*Source: What is the average interest rate for savings accounts? Bankrate, December 2023.
This section delves into the numerous advantages this financial strategy offers that we have experienced first hand by practicing Infinite Banking ourselves, including its role as a non-correlated asset, improving cash flow, providing tax advantages, and offering financial leverage and stability.
We cannot stress enough the importance of having your money stored in a safe environment, free from the ups and downs of the stock market or real estate market. Whole life insurance is an asset that is not correlated to the stock or housing market.
Whole life insurance offers guaranteed cash value growth year over year, providing policyholders with an excellent “safe bucket” of assets that can help insulate you from risk and volatility and create some stability in an otherwise unstable world, which frees you up to take advantage of opportunities when they arise.
When you engage in the strategic use of a whole life insurance policy applying the infinite banking concept you improve your cash flow and liquidity. Consider this fantastic infinite banking example.
If you have equity in real estate, how liquid is that equity? The answer is, not that much. If you want to gain access to the equity in your home or investment real estate you have to sell the property, qualify for a HELOC or Cash Out RE-Fi.
If your money is in your infinite banking policy, an advantage is that you have unhindered access to your policy’s cash value. To access your cash value, all you need to do is call your insurance company and ask for a check to be issued. You can usually receive a check within just a few days – no qualification – no evaluation – no hassle.
So, a huge benefit of an infinite banking strategy using whole life insurance is that you can store your wealth in a liquid asset. And that asset provides true compound interest growth, in a tax favored environment.
Another benefit of infinite banking is that you are in control (i.e. the owner and operator) of your own personal or family financing company. You are using life insurance as your own bank as you become your own banker.
Becoming your own banker means you can:
- loan your money out,
- charge your borrower interest,
- then your borrower pays you for the use of your money,
- you recoup the principal with interest, which
- you use to pay back your policy loan, and
- you then repeat the process ad infinitum.
Each time you loan your money out to either yourself, your family, your business, or whoever, you are charging interest. As you recoup the money with interest, you are adding more money into your bank (policy) than you started with. The result is that over your lifetime you have amassed wealth beyond what you ever believed was possible.
When you employ an infinite banking strategy you are placing your equity into a tax-advantaged storehouse for later use. The cash in your storehouse is in a true compound interest account because you are never touching your actual principle or paying taxes on gains. Instead, you are borrowing from the carrier’s general fund. That way your money in your cash value life insurance policy is continually compounding, even while you borrow against it to invest in another opportunity.
And don’t forget about the tax free death benefit for your beneficiary. The life insurance death benefit is not the main focus when an using infinite banking strategy but it does provide a leveraged tax free death benefit payout should you die prematurely.
Having a lump sum tax free death benefit provides peace of mind knowing that your loved ones are taken care of if you die young. And your death benefit will grow over time, so that the older you get the greater the death benefit you leave behind.
Infinite Banking vs 401K or IRA
For those that choose to fund a 401k plan or IRA, there is no death benefit. A beneficiary family gets the proceeds from the 401k or IRA as is, minus any income tax owed, which is taxed as ordinary income (the highest taxed type of income).
Your whole life insurance policy’s cash value offers taxed deferred growth, and you can completely avoid ever paying taxes on your policy’s tax deferred growth by choosing to take out life insurance loans. Whole life insurance policies offer guaranteed growth, so you know that your cash value will grow year in and year out.
In addition to guaranteed returns, tax deferred growth of your policy’s cash value also occurs through life insurance dividends. These dividend paying whole life insurance policies used for infinite banking provide an annual dividend payment to its eligible policyholders. Although non guaranteed, most top mutual insurance companies have paid a dividend every year for over 100 years.
Whole life insurance dividends can be used for many different things but ideally you want to use the dividends to purchase additional paid up life insurance. That way your dividend goes back into your policy and buys even more death benefit. As you do this, your policy’s cash value and death benefit will continue to grow.
Although you may be tempted to withdraw cash from your policy, it is important to understand that you have tax free access to your cash value through life insurance policy loans.
You are using money that has a guaranteed growth rate of 3.5-4% a year, plus dividends that add another potential 2-3% a year. That is a potential 5-6% yield that compounds year after year that you can use tax free via loans. And if you are not being taxed on your gains, it is similar to earning 2-3% more interest, depending on the tax bracket you fall into.
Consider that normal stock market returns are taxed around 20% or more. That means if you earn $10,000, you will pay around $2,000 in taxes that year (maybe higher). If you earn $10,000 in your policy you will pay ZERO taxes, because you have access to that money via tax free policy loans.
Whereas other types of permanent life insurance involve some level of risk, whole life insurance provides guarantees.
Whole life insurance guarantees:
- Guaranteed cash value accumulation
- Guaranteed death benefit
- Guaranteed fixed premiums
- Guaranteed compounding interest rate growth
For many asset classes, the public can simply do a search and find out what you are up to. For example, running a credit report or title search will tell you a great deal about an individual’s financial holdings.
However, with life insurance your policy’s information is private. Your whole life insurance cash value holdings do not show up on any reports or searches. And when you take out a policy loan for infinite banking, your loan does not show up on a credit report, which comes in handy when you are applying for financing.
There are many states that provide creditor protection for life insurance. So, if you are faced with some financial strife, your cash value may be sheltered from creditors. Additionally, if you are sued, your money in your policy may be protected from a judgment.
Note: This map is not legal advice and you should consult with an attorney in your state if you have any questions regarding the below information.
As you can see above, the advantages of implementing an infinite banking strategy using whole life insurance are many. However, there are a few infinite banking disadvantages as well that need to be addressed when considering if this is the right path for you.
Infinite Banking Cons:
- Cost Prohibitive
- Mandatory Annual Payments
- Creditor Protection Variances
- Requires Discipline
- Must Qualify
- Limited Liquidity
- Not Diversified
For many people on a tight budget the infinite banking concept can be cost prohibitive. Although there is no set minimum monthly payment, in order to truly follow this concept and see its fruit you would need to try and put around 10% of your income into your policy, or at least $300 a month.
The good news is there is often places where you can “find” additional money that is slipping through the cracks. Our team of pros can help you shore up you finances and discover money you never knew you had.
Infinite banking life insurance policies require monthly premium payments to keep it in force. If you cannot pay policy premiums, your policy may lapse. This is a problem but there is also a good solution.
You can design your policy so that your minimum monthly premium payment is easily achievable even when finances are tight. For example, many people opt to have a policy design where 80-90% of the money paid into the policy goes towards paid up additions. And the other 10-20% of money paid to the insurance company goes to the policy’s base premium.
How this may look is you have a monthly premium payment due of $200, but a maximum contribution allowed of up to $1,000. So when finances are tight, you make your minimum payment of $200. And when you have the funds available you can fully fund your policy up to the $1,000 maximum.
As you can see on the chart above, not all states have the same creditor protections, so this is a drawback to infinite banking if you live in a state where you have limited protection, if any. The good news is, if you ever move to a state with better creditor protection you will be granted that states protection, rather than have to adhere to your old states lack of protection.
The infinite banking concept is for a disciplined individual focused on seeing this through to the end. As Nelson Nash would say, You have to be an “honest banker.”
An “honest banker?”
The most powerful aspect of infinite banking is the long term growth that is fueled by borrowing against your policy AND PAYING IT BACK! If you don’t pay back your policy, you will slow the growth, and ultimately miss out on maximizing your policy to pass on as a legacy. So to be your own banker, you have to think and act like a banker.
Infinite banking involves getting the right cash value life insurance policy. And as with any life insurance policy, you must qualify by taking a life insurance medical exam. And if you have health issues, it may be harder for you to qualify for an infinite banking policy. When applying for life insurance with health issues it helps to have options and choose a company that you are more likely to be approved with.
When you begin your infinite banking policy it takes a few years before the money you have contributed and your cash value account are equal. Depending on the policy structure you choose, it may take 4-7 years before you are at equilibrium. For some people that need full access to all their cash in year one this may be problematic.
Another infinite banking disadvantage is the lack of diversification. Since your money is only in your life insurance asset, you are breaking one of the main tenets proposed by financial “gurus” who tell us to diversify, diversify, diversify!
However, the idea that you have to diversify assumes that the market may move against one of your positions so being diversified acts as a hedge against market volatility. Consider two reasons why diversification is not an issue with an infinite banking insurance policy.
Reason one: With an infinite banking policy you have certain guarantees, such as guaranteed cash value growth, guaranteed death benefit, and guaranteed fixed premiums. It is this certainty that removes the need to diversify.
Reason two: If you are practicing infinite banking you are using your dividend paying whole life insurance as an asset to borrow against for the purchase of other assets. As you are doing this you are engaging in diversification by purchasing cash flowing assets.
First, let’s start with references. As you can see from our trustpilot reviews, we provide top level service to our customers throughout the process and beyond, as we are here to help you as coaches and guides throughout your journey as is evidenced by our amazing client testimonials.
Another way we can show your our expertise is by showing you examples of our client’s success stories and have many infinite banking webinars available. Below is an example where we demonstrate how the principles of Infinite Banking come alive in everyday lived out scenarios.
This example is a real life case study of a real estate investor using high cash value whole life insurance and infinite banking to maximize real estate returns. The whole life insurance policy is utilized as a conduit to run transactions through, so that you are making compound interest on your whole life policy’s entire cash value account balance, and you are also 💥simultaneously making money💥 on the real estate investment. You can then use the cash flow from your real estate investment to pay down your whole life insurance loan, which allows you to use your cash value again for when the next opportunity presents itself. You may also plan on flipping the property, so you can wait on paying back the loan until you have sold the property.
To be your own banker you would want to implement the following 10 steps:
- Education: Before you take any of the steps below it is important to gain a certain level of understanding about how Infinite Banking works. We recommend you familiarize yourself with the infinite banking concept by reading Nash’s book and watching our many videos on the subject.
- Financial Goals: Another important point is to reflect on your long-term financial goals. Consider how implementing the Infinite Banking Concept aligns with these objectives, including retirement planning, wealth accumulation, or debt management.
- Consult with a Professional: It is also highly advisable to consult with an infinite banking professional, such as our Pro Client Guides, who have years of experience designing and implementing this strategy. They can provide tailored advice based on your financial goals and situations, drawing form their own lived out experiences and expertise.
- Cash Value Life Insurance: Make sure you choose the best cash value life insurance policy. In our experience you want a high cash value whole life insurance policy from a mutual insurance company, although we have had clients find success with indexed universal life insurance.
- Life Insurance Riders: The riders for your infinite banking policy dictate how much early cash value you will have available. Finding the correct blend of base premium and paid up additions is key. There may also be a need for a term rider on your policy so that you avoid your policy becoming a MEC.
- Fund your Bank: You may choose to pay monthly or annually. You also may want to put in a large lump sum payment upfront. And you may qualify for backdating your policy to save age, which allows you to fund the policy with more money in the first year than you normally would be able to.
- Finance Your Purchases: Look for investment opportunities, such as paying off debt or buying real estate, business ventures, or dividend paying stocks. You can borrow against your cash value and use the funds to purchase other assets or eliminate bad debt. And the best part is that the money in your whole life insurance policy’s cash value account is still compounding, so you are still making money on your entire cash value balance and in the investment opportunity you used the loan to purchase, that way your dollars are working in two places at once.
- Recapture Your Money: Pay your loan back, with interest, as if you were actually recapitalizing your own bank. This way you pay back your loan as quickly as possible, so that you can move forward with the next step.
- Repeat the Process: The infinite banking concept is about keeping money momentum going. Once you get started, keep at it. And over your lifetime you will have acquired other assets, as well as growing your cash value and death benefit.
- Plan Your Estate: There is a good chance you will have acquired a sizeable estate, so good estate planning is necessary to make sure you pass on your legacy. This may look different for one person to the next, but whether you plan to leave your estate to family or charity, it is important to plan ahead so that your family or charity can receive the full extent of your disciplined work.
The following are our picks based on years of experience for the best in class mutual life insurance companies for infinite banking. The list is subject to change and you can read more about these companies, including the criteria we use, by visiting our article Top Infinite Banking Companies
2. Lafayette Life
7. Northwestern Mutual
An infinite banking strategy requires a shift in mindset as you step out of traditional roles as a passive saver and step into the empowering position of becoming your own banker. It’s about taking control of your financial future, not through complex market maneuvers, but through a simple shift in how you use and grow your money.
An infinite banking strategy requires commitment, discipline, and a willingness to think differently about personal finance. The rewards are worth the effort, which are greater financial control, peace of mind, and the satisfaction of knowing that your financial strategy is proactive, not reactive.
As we conclude, remember that the Infinite Banking Concept is a journey, not a destination. It’s a continuous process of learning, applying, and refining a strategy that aligns with your personal financial goals and values.
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