Infinite Banking: what is it and how does it work?

Infinite banking is a way to become your own bank, taking out loans against a permanent life insurance policy. Imagine never having to worry about a Credit checkhigh interest payments or reapplying for a car or student loan – it could be a reality via Infinite Banking.

Being your own banker can be a useful tool on your path to financial freedom. Take a closer look at how the infinite bank concept works.

What is Infinite Bank?

Infinite Banking lets you become your own bank by leveraging the value of a dividend-paying permanent life insurance policy. Developed by economist Nelson Nash in the 1980s, Infinite Banking gives you the freedom to access your policy’s cash value by borrowing from yourself and paying it back at any time.

What is the infinite bank concept?

The Infinite Banking concept revolves around a whole life insurance policy. Whole life insurance versus term life insurance, is a permanent life insurance policy. This means that the policy is guaranteed for life as long as the premiums are paid on time. In comparison, a term life insurance policy only lasts for a certain time, such as 20 years, or until a certain age, such as 65.

The premiums for a whole life insurance policy are higher than those for a term life insurance policy. Your monthly premium payments go to three components:

  • Fees and operating costs
  • The part that covers the death benefit
  • The portion of the cash value held in a savings type account

A portion of each premium payment is directed to the savings portion as cash value. This is a unique feature of a whole life policy because you can borrow against this growing portion of the tax-deferred cash value to fund major life expenses such as to buy a house or pay for college. The cash value of your life insurance policy will allow you to become your own banker by following the principles of infinite banking.

How much money is needed for Infinite Banking?

The amount you need to start an infinite bank will depend on your life insurance policy provider. Age can affect the cost of monthly premiums, so it’s often best to start as early as possible. Since you can only borrow against the savings portion of the cash value, a large sum of money must be paid into the insurance policy over time before borrowing against it makes sense. For this reason, infinite banking is not always a good fit for the average American.

Is infinite banking legit?

Although many Americans may never have heard of infinite banking before, it is a legitimate way to borrow money without using traditional bank. Of course, the infinite bank concept may not be for everyone and has its pros and cons.

Benefits of Infinite Banking

According to the Federal Reserve, 9.58% of Americans’ monthly disposable income is currently spent on debt repayment. Infinite Banking focuses on redirecting that money to yourself through privatized banking.

Here are the benefits of IBC:

  • You can borrow for anything you want, without any explanation.
  • There’s no credit checks forced to borrow.
  • Dividends, loans and withdrawals are tax exempt.
  • The policy’s cash value continues to increase throughout the life of the policy, even while you’re borrowing.
  • You can contribute additional money to the value of your policy.
  • You can lend money cash value to family or loved ones.
  • Interest rates are generally lower than for a traditional loan.
  • You can repay yourself at your own pace.
  • You create a financial source by financing your future loans while creating a legacy for your beneficiaries in the form of a death benefit.

Disadvantages of Infinite Banking

Infinite banking requires a long-term strategy and a lot of discipline. The insurer will not establish regular payments on your behalf, but will expect the loan to be repaid. It is up to you to be financially responsible when you are your banker. This has a few drawbacks:

  • Monthly premiums can be high.
  • Unless you make arrangements in advance, the life insurance company will absorb the cash value when you die and the beneficiary will receive the death benefit.
  • If you do not repay the loan, the amount will be deducted from the death benefit.
  • Qualifying for a new whole life insurance policy can be difficult for people who are elderly or in poor health.
  • The amount paid out for a permanent life insurance policy and the cash value balance could grow more over time in other investments such as a index fund.

How to start Infinite Banking?

If you are interested in the concept of financing, here are some steps to consider to get started. Here’s how to set up infinite banking using a whole life policy:

1. Start young when premiums are lower

Like all life insurance products, premiums are lower when you are younger. Since your premium is locked in for the life of the whole life insurance policy, the sooner you apply, the better.

2. Choose a reputable insurer

Infinite banking is a lifelong process, so be sure to choose from reputable life insurance companies you are sure that you will be there for the long haul.

3. Choose an indirect recognition policy

Whole life insurance contracts pay you dividends on your investment. But if you borrow against their value, the insurer might only pay dividends on what’s in the account. A non-direct recognition policy pays you dividends on the full cash value, even if you borrowed against it.

4. Choose a policy with a cash value rider that benefits your loved ones

In most policies, the life insurance company will absorb the cash value when you die and your beneficiary will receive the death benefit. To avoid losing the cash value you’ve built up over your lifetime, add a rider to your policy that gives the beneficiary both cash value and face value.

5. Add an additional paid rider

Paying your monthly premiums could take a decade or more to create significant cash value that you can borrow against. Adding the paid-in capital gains insurance rider to your policy will allow you to pay more of your cash value to grow it faster.

6. Go ahead and borrow

When you’re ready to borrow, your loan will come from the cash value of your policy, which is used as collateral. Simply call your insurer and request financing. Unlike a traditional loan, you don’t have to explain why you need the money, and the loan won’t affect your credit. The loan is not recognized by the IRS as income, so it is tax free.

7. Get reimbursed

You will be charged interest, although it is likely to be less than interest on a bank loan. Although there is no monthly payment required, you must repay the loan. Take as long as you want to pay it off, but be aware that the loan reduces the death benefit until it’s fully paid off.

Infinite Banking Alternatives

This concept is not suitable for everyone, but there are alternatives to borrow at advantageous rates and see your savings grow over time. The key is consistency and financial discipline. Here are some alternatives:

Traditional banks

Most commercial banks offer a variety of savings and loan products to suit their customers’ needs. Learn more about GOBankingRates’ Annual ranking of the best banks.

credit unions

credit unions are non-profit institutions that reinvest all profits in their products. They offer competitive loan and savings rates that are often better than those of a traditional bank.

High Yield Savings Accounts

Several online banks offer high yield savings accounts which could offer you a higher interest rate than a savings account through a traditional bank.

The Infinite Banking concept in brief

IBC could be a powerful personal finance tool for high net worth individuals who could benefit from tax savings and want the freedom to borrow money quickly. Individuals can borrow against their whole life insurance policy without a credit check or lengthy underwriting process. While this is an excellent resource for financing major expenses such as a college education or real estate, coverage for these types of loans requires a significant investment in the cash value of the policy over time.


A quality permanent life insurance policy and long term financial plan are needed for the infinite bank to work. Start early, even if you don’t think you’ll need to borrow for years. The younger you buy whole life insurance, the cheaper it is. Getting coverage early also gives you more time to build cash value before you hit big milestones like buying a home or paying for a dependent’s college education.

Chris Ozarowski contributed to the reporting of this article.

Information is accurate as of October 13, 2022.

Editorial note: This content is not provided by any entity covered by this article. Any opinions, analyses, criticisms, evaluations, or recommendations expressed in this article are those of the author alone and have not been reviewed, endorsed, or otherwise endorsed by any entity named in this article.

This article has been updated with additional reports since its original publication.

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Infinite Banking: what is it and how does it work?

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