The infinite banking concept (IBC; lifestyle banking) works wonders if you know how to use it, and only 1% of the people in the world do. In this article, we will explore the benefits of infinite banking and how it works through a whole life insurance policy.
Whether you are new to the Infinite Banking concept or want to learn more about how to use your policy to own your own lifestyle, this guide can assist you in better understanding your options and taking the first steps in building your own banking system.
We have already generated over $75 million for our clients with a financial system we love to call Lifestyle Banking.
Learn more about the infinite banking concept and how to get started with infinite banking.
What is Infinite Banking?
Infinite Banking concept revolves around an individual who becomes their own banker by accumulating liquid cash value within a well-designed permanent life insurance policy. Then, you borrow money against it to pay or invest.
In other words, you are your own banker.
Because of this, you don’t have to borrow money from a bank again (you will still need a bank account, though). Then, you repeat the process as much as possible to build your own bank’s value.
The infinite part refers to the whole life insurance payout when you die. As long as premiums are paid on your permanent life insurance policy, there will always be a payout to the policyholder.
When the policyholder dies, the payout from the whole life insurance policy can go to the beneficiaries and allow them to set up the same lifestyle banking system.
Is Infinite Banking Legitimate?
“Is infinite banking legitimate?” is one of the questions you guys often ask us before you join our Wealth Nation community where you connect with like-minded people and see on their examples that this actually works.
But, Infinite banking is just a strategy. Whether it works or not depends mostly on you. You can work your way up at your own pace and repay loans at your own pace. It is best to start infinite banking with a clean slate, but this can help you solve financial trouble.
History of Infinite Banking
Let’s dive deep and see how Infinite banking came about. It took some time for this banking concept to develop. It all started back in the late 1800s.
In 1871, Carl Menger, the founder of the Austrian School of Economics, published his first book, Principle of Economics, in which he criticized the classical theory of economics that was commonly held at the time and provided an alternative way of thinking about economics.
Menger proposed the “Subjective Theory of Value,” the idea that an object’s value is not inherent and is worth more to different people based on how much they desire or need the object.
The subjective theory of value places value on how scarce and useful an item is rather than basing the value of the object on how many resources and hours of labor went into creating it.
In other words, individuals value money and goods differently based on their economic status and needs.
Many famous economists, such as Ludwig Von Mises, Murray Rothbard, and Friedrich Hayek, have followed and promoted this school of thought.
Based on the Austrian School of Economics school of thought, Nelson Nash created infinite Banking in the 1980s. He named it and popularized it in the book we reviewed, so you don’t have to read it: Becoming Your Own Banker.
Out of this same school of thought, Nash developed the idea of individuals becoming their own bank to meet their unique financial goals and how individuals can be their own bank instead of relying on financial institutions.
How Infinite Banking Works
Infinite Banking provides an extremely tax-efficient system, delivers a competitive interest rate for how stable it is, can never decrease in value, and allows you to use money in your life insurance policy and elsewhere.
There are three things at work:
- Overfunding (with after-tax funds) a significant cash value whole life policy from a life insurance company
- Accumulation of Cash Value(tax-free) throughout the years you are a policyholder of your Whole Life policy
- Untaxed loans taken out against your whole life insurance policy’s cash value to use for your individual financial expenses
The concept allows you to mimic the way a traditional bank operates.
Instead of borrowing from traditional banks, you are borrowing from yourself while still allowing your policy to earn dividends (money) even though you are using that money elsewhere.
You can fund major life expenses such as
- Your child’s education
- Downpayment on the house
- Medical expenses
- Car or student loan
Lifestyle Banking is more of a long-term play and investment – you cannot get rich with this system overnight. It is a vehicle that will get you to your destination.
We often discuss the importance of understanding your personal finance in order to capitalize on your efforts in investing in this system.
You don’t want to make the same financial mistakes you may have made before using your whole life insurance policy as a tool for this type of banking.
The purpose of Infinite Banking is to serve as your personal savings system, where your money grows more conservatively, your money is guaranteed never to decrease in value, and can be dependably accessed through policy loans at any time.
Sounds pretty great, right?
The Role of Whole Life Insurance Policy in Infinite Banking
Life insurance policies allow the policyholder to act as their own banker by using the whole life insurance policy as the bank. In fact, the infinite banking concept revolves around a whole life insurance policy.
If you were to ask how important life insurance is in keeping the system running, we’d say:
However, it is critical to note that infinite banking is NOT whole life insurance.
It is a tool that can be used to replicate the banking system using your own money and is one of the reasons why infinite banking works.
While Nash coined the term infinite banking, the concept of using a whole life insurance policy to build wealth wasn’t necessarily new in the 1980s.
Families such as the Morgans (J.P. Morgan) created generational wealth using whole-life insurance policies long before the 1980s.
In addition, large companies hold millions of dollars in whole-life insurance to help fund business expenses and earn favorable tax advantages.
Some other policies, such as term life insurance policy, or universal insurance, are sometimes considered by people who want to start infinite banking. Neither term life insurance policy nor universal insurance have guaranteed growth and therefore are unsuitable. Term life has no cash value either, so that is a definite no-go.
But here, we compare whole life and universal life just for you to see the differences:
There are plenty of other life policies people want because they don’t want to switch, but none can be effective for this way of earning money.
How do we use our life insurance policies as our own bank?
Whole life provides a significant cash value benefit to policyholders.
Every time you make a premium payment, a portion of your payment is put towards a savings portion of your policy called cash value.
With each premium payment, the cash value accumulates at a tax-free rate and can be utilized as needed and as you see fit. The point is that the cash is yours.
This is where the lifestyle banking system starts.
The cash can be accessed either through a withdrawal or a loan – it is important to understand that these are different things. The benefit of accessing it through a loan is that it does not disturb the compound interest in the policy.
With a life insurance policy, after the policyholder is gone, the beneficiaries of the policy will receive a guaranteed amount of money that will help them fund major life expenses.
In addition to cash value accumulating at a tax-free rate, a life insurance policy offers an income tax free sum of money known as a death benefit.
Your policy’s cash value is the amount of your death benefit that the insurance firm is making payable to you.
If you were to cancel your policy while still living, the cash value is the amount the life insurance policy provider typically pays you.
But again, as long as your policy premiums are paid, both the cash value and face value can be used for a car or student loan with your policy as collateral. If you are using your policy just for the death benefit, you are using it wrongly.
Participating and non-participating types of life insurance
The main difference is that participating life insurance policies allow you to participate in or receive dividends based on the insurance company’s profits.
With non-participating policies, you do not participate or receive dividends from the insurance provider.
If you use participating life insurance policies for Infinite Banking, your cash value savings portion increases every time the life insurance policy provider pays dividends.
It also increases when you pay policy premiums and earns guaranteed interest rates.
Essentially, your “bank” consists of a portion of premiums paid (money from you) + guaranteed interest earned + potential dividends (money from your insurance company).
So instead of using a savings account in a traditional bank that offers minimal returns, you save inside of your dividend-paying life insurance policies, where it grows tax-free with a higher rate of return, essentially having your money work for you in two places at once.
Pros and Cons of Infinite banking
Although we love Infinite banking, as this system brought us a lot of money, not everything is ideal.
Let’s discuss both sides of the spectrum below to help you better understand and make an informed decision about how to best utilize this system through your insurance that works for you and your family.
Pros of Infinite Banking System
- Non-Correlated Asset
- Liquidity and Cash Flow
- Tax Benefits
A whole life policy is an asset that is not tied directly to the stock market, also known as a non-correlated asset.
Given how the stock market can fluctuate, this type of permanent life insurance policy provides a safer and more secure asset that does not change based on the market.
This is not to say you can’t or shouldn’t have assets tied to the stock market.
However, with the guaranteed annual cash value savings portion growth, it provides a more stable way to manage your finances in a world that does not always offer that stability.
Liquidity and Cash Flow
When you utilize your insurance, you automatically improve your cash flow and liquidity.
Whole life is an extremely liquid asset compared to other assets such as real estate, stocks, bonds, or other investment plans such as your 401(k) or IRA.
The other benefit to your cash flow is that you don’t need to go through the paperwork of getting a loan from traditional banks.
You can request a policy loan from your insurer, and funds will be made available to you.
Be aware that you can get the money from your insurance policy either by taking it out as cash or by getting a loan.
The benefit of accessing it through a policy loan is it does not disturb the compound interest in the policy, which is an important distinction from making a withdrawal.
Make sure to check with your whole life insurance agent to see what makes sense for your specific situation.
Because a whole life insurance policy is liquid, it serves as a valuable part of your financial foundation, acting as your emergency savings, if you will.
Whether you run into unforeseen expenses such as medical bills, job loss, or costly home repairs, whole life insurance loans offer a safety net.
You can even use your insurance policy to pay yourself an income for any reason needed.
An example of how an infinite banking concept through your whole life insurance policies can be used can be seen here:
If you had a $20,000 car with 100% equity (i.e. you owed zero), most people would tell you, “you are debt free”
However, what if you owed $20,000 on that same car, but you also had $20,000 in your whole life insurance policy earning tax-deferred compound interest)?
Would you still be debt-free?
In reality, you would have a $20,000 debt, but you would also have $20,000 liquid cash available for you whenever you needed it.
Your balance sheet would reflect ZERO overall debt.
Another benefit to infinite banking is that you are in control of your financial assets through your whole life insurance policies. Again, you are your OWN banker.
Each time you loan money from your policy to yourself, your family, your business, etc., you are charging interest at different interest rates.
The cash value growth in your policy is tax-deferred, and when you borrow against the cash value in your policy again, in the form of a loan, not a withdrawal, the cash value continues to grow in your cash value savings portion.
As an example of this, if you borrow $50,000, you are taking a loan from the insurance provider. The company is using your cash value as collateral.
But the cash value still remains in your policy and still earns interest, plus any dividends.
So, even when you are using your cash value elsewhere, compound interest is still growing in your policy, essentially having your money in two places at once.
The result is that you have increased your financial assets during your lifetime through your policy.
The life insurance death benefit of whole life provides a leveraged payout in the early years should you die prematurely.
Having a lump sum death benefit provides peace of mind knowing that your loved ones are taken care of if you die young.
So the death benefit is there from day one, which is huge financial leverage dollar for dollar when you consider you only put a fraction of money into the policy.
Let’s think about this concept with other assets, such as your 401(k) or IRA.
If you pass away with money left in either of your qualified 401(K) or IRA, yes, the remaining funds will still be passed onto your beneficiary.
However, it will be taxed as ordinary income (the highest taxed type of income).
While there is still a guarantee that your beneficiary will receive something, you can not guarantee the amount due to future tax rates.
In contrast, with life insurance, the death benefit is tax-free.
With whole life insurance, there is a guarantee that your beneficiary will receive a substantial amount of money that is also tax-free.
Whole life insurance provides a variety of tax benefits.
In addition to the death benefit being tax-free, as stated above, where we discussed it as a benefit in terms of providing leverage, the cash value growth in whole life insurance policies is also tax-deferred.
Furthermore, you can also take out a loan against the cash value, and the whole life insurance loan is not taxed.
Lastly, dividends received from the insurance company that is given to the policyholder on an annual basis are also not taxable.
These are some of the ways that the IBC gives you a tax benefit and advantage compared to banking in a more traditional sense.
A properly-structured participating whole life policy provides many incredible guarantees.
According to Guardian, based on your life expectancy, the insurance sets four guaranteed benefits:
- Guaranteed level premium: As long as you keep paying premiums, the policy will stay in effect.
- Guaranteed Death Benefit: the amount paid to your beneficiaries will never decrease
- Guaranteed Cash Value: A cash value that is guaranteed to grow at a set rate each year until it is equal to the face amount of the policy at a specified age, typically age 100 or 121.
- Guaranteed Endowment: The death benefit is guaranteed to be paid if the insured is still living at the age specified in the contract, typically age 100 or 121.
Along with the above guarantees, you can earn dividends through your whole life insurance.
Having whole life insurance policies that will allow you to receive dividends is another way to ensure you can create an infinite baking system through your policy.
These guarantees are yet another reason why properly structured whole life insurance is the ideal tool for Infinite Banking.
Cons of Infinite Banking
- Mindset and Discipline
- Not Diversified
Infinite banking does come with some downsides to consider when looking at your options.
Let’s discuss some of the cons below, and remember to always check with your life insurance agent to discuss the best options for your specific financial situation and goals.
Just like with many other financial plans and savings, you must qualify for any permanent life insurance policy.
As I have previously mentioned, a whole-life policy is more favored for infinite banking, and in order to qualify for an infinite banking policy, you must first qualify for a whole-life policy.
I will discuss later the difference between universal life insurance and whole life insurance when it comes to infinite banking.
For now, let’s focus on the qualifications needed for whole life insurance.
If you are looking to apply for whole-life insurance, you may have to complete a medical exam to determine life expectancy based on health tiers. Once you are assessed for health, your tier stays the same for the remainder of your policy, which means the healthier and younger you are, the cheaper your policy may be.
There is a great benefit to obtaining whole life insurance at an early age when your health is at its best. This will allow you to qualify for a lower premium that will remain the same for the entirety of the life policy.
When applying for life insurance with health issues, it is beneficial to have options and choose a company that you are more likely to be approved by. Again, speak with your life insurance agent to see what options are best for you and your specific situation.
A potential way to work around this is for some people who are unable to qualify for life insurance for any number of reasons to get a policy on a loved one, such as a spouse.
Mindset and Discipline
Infinite Banking is a proven concept for growing and protecting generational wealth.
However, it is not always considered the norm or easiest way to finance, such as 401K or IRA financial plans are often viewed.
Infinite Banking is an opportunity to level up and change your mindset and personal development, and growth when it comes to your financial goals.
You need to be comfortable taking your financial future into your own hands and have a clear and creative outline of your financial goals.
As Nelson Nash would say, you have to be an “honest banker.”
If you don’t pay back your policy loans (with the exception of using policy loans to fund retirement), you won’t see your wealth grow over the course of your lifetime, and you won’t be able to create generational wealth.
This means having discipline when it comes to your finances.
Being an honest banker also means being honest with yourself about your financial goals and the steps you will take to get there.
The infinite banking concept is not for the weary, however, if you have the right discipline and mindset, it can be achieved.
Infinite Banking is not about instant gratification.
If you have patience, like most things in life, you will be rewarded, and the reward will be far greater than what a 401(k) or IRA plan can, even if it appears to be the easier and safer way to invest.
I am sure you have heard from financial advisors that it is important to diversify our assets and not put them all in one place.
One of the cons of the infinite banking concept is that you are putting all of your assets in one place, thus not diversifying them.
As we mentioned before, infinite banking is a non-correlated asset that is not tied to the markets.
This doesn’t mean your money won’t grow, we know it grows in the whole life insurance policy, but it is only growing in one place as opposed to having a diverse portfolio.
Since all your money is only in your whole life policy, you are breaking one of the lessons you have probably heard that you need to diversify your assets.
Just like the infinite banking concept requires a different mindset and discipline, it is also about taking a different approach to investing your money that may not go along with societal norms of investing.
Here is a diversification point we’d like to make about the Infinite banking concept: “If you are practicing infinite banking, you are using your 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”
Thinking about it this way, we would also argue that you are still diversifying your assets, just not in the same way as if they were tied to the stock market.
Ultimately, when you incorporate infinite banking into your financial growth strategy, you will automatically diversify in order to maximize your policy and generational wealth.
Compared to term life insurance, the premiums for whole life insurance are significantly higher.
Whole life may not be the best option for someone who is living paycheck to paycheck.
However, it is important to be mindful that with whole life insurance, you are not only paying for insurance.
You are working toward putting a certain amount into “a savings account” in your insurance policy, which you can use however and whenever you want. At the same time, dividends and compound interest are making you money in the same policy.
In conclusion, there are many pros and cons to weigh when making the decision to use your policy to create an infinite banking strategy for you and your future.
The pros far outweigh the cons, and with the right qualifications, mindset, and discipline, anyone can utilize an infinite banking concept throughout their whole life to maintain control and ownership of their finances and create generational wealth.
The decision seems pretty simple to me. Let’s see if it works for you.
Is Infinite Banking for you?
If you are still unsure if it is right for you, here are some things to consider.
- Infinite Banking provides a guaranteed return on money.
- Infinite Banking provides fixed premiums throughout your whole life insurance policy
- Infinite banking creates financial access through your cash value that you can use before death.
Another way to start thinking about if infinite banking is right for you is to consider your financial needs, goals, and timeline.
Do you need something for a shorter time period? Need protection for a more short-term, temporary need? Do you need something more permanent?
If you are in the business of growing your financial wealth more conservatively and thinking about your long-term plan while wanting guarantees and who doesn’t, then infinite banking may be the better choice for you.
Building up the cash value in your policy may take some time, so it’s important to be patient and understand your personal finances before committing to infinite banking.
Working with an insurance expert is the best way to determine the right plan for you.
How to Set Up Infinite Banking
To get the most out of the system’s many benefits, the right policy needs to be set up in a certain way. There are many moving parts and things to consider.
Finding an insurance company that meets your specific needs and goals is crucial.
You always want to consider a permanent life insurance company that is known for consistent and reliable annual dividend payments.
The annual dividends, while not always guaranteed, will add to the cash flow of your insurance.
Once you have decided on an insurance company to purchase a policy from, the next step is making sure your policy allows policy loans.
Next, you must ensure your policy is eligible for policy loans.
Without this, your policy will not be successfully set up to maximize wealth through your infinite banking strategy.
There are two types of policy loans.
- Direct recognition policy loans and Non-Direct recognition policy loans
- Direct recognition policy loans don’t pay dividends when you borrow money.
For example, if you’ve got a $100,000 policy’s cash value and take out a $5,000 loan, you earn dividends only on the remaining $95,000.
Non-direct recognition loans pay you dividends even if you’ve taken out a loan on your policy. Using the above example, when you take out that same $5,000 loan, you’ll earn dividends on the entire $100,000. It’s still fully funded in the eyes of the mutual life insurance company.
For infinite banking, non-direct recognition policy loans are ideal.
Lastly, it’s crucial that your policy is a blended, over-funded, and high-cash value policy.
One way to maximize the already guaranteed cash value is by including riders in your policy.
What are riders?
Riders are additional features and benefits that can be added to your policy for your specific needs. They let the policyholder purchase more insurance or change the conditions of future purchases.
One reason you may want to do this is to prepare for unexpected health problems as you get older. You can avoid losing the policy’s cash value by adding a rider that gives the beneficiary both the cash value and the face value.
Life insurance is much cheaper if you are young and healthy, so why not prepare before premiums get higher?
Having the option to purchase additional insurance earlier allows you to be prepared for unexpected life situations, such as a terminal illness or chronic illness.
In this specific case, a portion of your death benefit can be utilized to take care of medical expenses while still living.
Different types of riders
A paid-up additions rider allows the policy owner to purchase more death benefits and increase the policy’s cash value growth.
Blended policies contain minimum insurance and the maximum amount of paid-up level term insurance, known as the “Paid-up additions rider.”
Paid-up insurance instantly adds cash value because you’ve purchased full death benefit insurance all at once.
A regular whole life policy will take at least a decade before there’s any cash value in the account. However, when using the IBC and PUA riders, you pay more money upfront as a way to augment your cash value for personal banking (IBC). If you throw in an extra $10,000 or $20,000 upfront, you’ll have that money to the bank from the beginning.
These are just some steps to take and consider when setting up your lifestyle banking system.
There are several different ways in which you can make the most of lifestyle banking, and we can help you find te best for you.
The 10 Best Companies for Infinite Banking
Here, we will provide a list of the 10 best infinite banking companies (some of which are mutual insurance companies):
- Penn Mutual
- American United Life
- Lafayette Life
- Mutual Trust
- National Life Group
- Security Mutual Life
While you can read about each of these companies in detail, they all have their benefits and downsides. But none of them will guide you through your journey as we at Wealth Nation do for our clients.
How to Maximize your Wealth from Infinite Banking
Wealth Nation is an excellent example that the infinite banking concept works – it is the brand we built thanks to Infinite Banking!
Not only did we generate wealth, but we also used this system to erase our $140,000 debt. If this isn’t proof that the infinite banking concept works, feel free to check out some case studies and see how people changed their lives.
Some important things to consider and know before joining us and using this opportunity include
- Results. What am I doing with the funds?
- Understanding your personal finance
- Focus more on generating assets
- Level up and own your own lifestyle.
- Simplifying for your family
- Personal development is key
Get Started with Lifestyle Banking
Now that we have discussed all the details of Infinite Banking, let’s get you started on creating your own system using your whole life insurance policy.
Watch our 1-hour in-depth masterclass where you can learn how to start infinite banking and own your own lifestyle.
It is FREE!
You can start implementing this system today and use your policy to finance your lifestyle.