Quick answer: Infinite banking is the idea of using a dividend paying whole life insurance policy as your own source of loans, so you borrow against your cash value instead of from a bank. The pros people like include cash value that grows on a guaranteed basis set in the contract, access to policy loans without a bank approving you, and a death benefit for your family. The cons include high premiums compared to term insurance, slow cash value growth in the early years, loan interest, and the risk of the policy lapsing if loans get too big or premiums are not paid. It is a long term commitment, not a quick fix.
We talk with a lot of people about infinite banking, also called Own Your Bank or the Infinite Banking Concept (IBC). It can be a useful tool for the right person. It is also not for everyone. Here is an honest look at both sides.
How Infinite Banking Works in Simple Terms
- You buy a dividend paying whole life policy, often designed with extra paid up additions.
- Over time the policy builds cash value.
- You borrow against that cash value with a policy loan.
- You pay the loan back on your own schedule, often with interest.
- The policy keeps its death benefit for your family, minus any unpaid loans.
To learn the basics, see our pages on what is cash value life insurance, what are paid up additions, and our post on how a policy loan works.
The Pros
| Pro | What it means |
|---|---|
| Guaranteed cash value growth | Whole life contracts include guaranteed values |
| Possible dividends | Participating policies may pay dividends, but they are not guaranteed |
| Easy access to loans | You can usually borrow against cash value without a credit check |
| Flexible repayment | You set the payback plan, within the policy rules |
| Death benefit | Your family gets a payout when you pass away |
| Control | You decide how to use the money |
The Cons
| Con | What it means |
|---|---|
| Higher premiums | Whole life costs much more than term for the same death benefit |
| Slow start | Cash value is usually low in the early years |
| Loan interest | Policy loans charge interest |
| Lapse risk | Large unpaid loans or missed premiums can cause the policy to lapse |
| Long commitment | It works best when kept for many years |
| Complex | Policies and illustrations can be hard to understand |
Who Might Infinite Banking Fit?
- People with steady income who can pay the premium for many years
- People who want permanent life insurance anyway
- People who like the idea of borrowing from their own policy
- People with an emergency fund already in place. See our post on how to build an emergency fund.
Who Might Want to Wait?
- People with high interest debt and no budget yet. Our post on how to make a monthly budget can help.
- People who only need coverage for a set number of years. See whole life vs term life insurance.
- People who cannot commit to the premium long term
Questions to Ask Before You Start
- What premium can I afford for the long run?
- How much cash value is guaranteed in the early years?
- What is the policy loan interest rate, and how does it work?
- What happens if I miss a premium?
- How are dividends paid, and are they guaranteed? (They are not.)
- What does the illustration show on the guaranteed side?
Talk It Over With Us
We help people look at infinite banking with clear eyes. Ted is licensed in life and health insurance in a number of states and can walk you through how a policy works. Nothing here is a promise of any result. Every policy is different, so read the illustration and contract carefully. Learn more on our insurance and infinite banking page.
You can also join our free Cash Flow Association community on Skool at skool.com/cashflowassociation to learn about cash flow, infinite banking, and money basics with other members.
The Bottom Line
Infinite banking has real pros, like guaranteed cash value, easy policy loans, and a death benefit. It also has real cons, like high premiums, a slow start, loan interest, and lapse risk. It can fit people with steady income who want permanent coverage and plan to keep it for many years. Ask good questions and understand the policy before you start.
Keep Reading on This Site
- What Are Paid Up Additions? A Plain English Guide for Whole Life Policy Owners
- How Does a Policy Loan Work? A Plain English Guide to Borrowing From Whole Life Insurance
- How to Build an Emergency Fund: 7 Simple Steps to Get Started
- Insurance and Infinite Banking
- Insurance and Own Your Bank Guide
Frequently Asked Questions
What is the biggest downside of infinite banking?
Whole life premiums are much higher than term, and cash value grows slowly in the early years.
Are infinite banking dividends guaranteed?
No. Dividends on participating policies are not guaranteed.
Can an infinite banking policy lapse?
Yes. Large unpaid loans or missed premiums can cause a policy to lapse.
Is infinite banking right for everyone?
No. It tends to fit people with steady income who want permanent coverage and can commit for many years.