I started Insurance Blog by Chris™ because I have a passion for insurance. Here at the blog, our job is to educate and inform people about the best insurance for them. Since then, we have grown into national brands with a large team of researchers helping people understand all forms of insurance.

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Written by Chris Huntley
Founder of Huntley Wealth & Insurance Services Chris Huntley

Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health insu...

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Reviewed by Rachael Brennan
Licensed Insurance Agent Rachael Brennan

UPDATED: Nov 19, 2021

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It’s not a new idea. People have been borrowing against the cash value of their whole life insurance policy for a couple centuries.

Infinite banking has been around for a VERY long time. It’s a way to set up your own banking system by using dividend-paying, permanent life insurance as a savings vehicle.

But this idea has gained more popularity in the past few years thanks to books like Bank On Yourself and the concept of Infinite Banking.

So, how does Infinite Banking work, and more importantly, should you give it a try? Let’s take a closer look.

How Does Infinite Banking Work?

Getting money to pay for college, to do home improvements, or to start a business often requires a loan from a bank. And a bank loan requires you to pay interest in exchange for using the bank’s money.

Depending on your loan type and your creditworthiness, you could be paying 3 to 30 percent a year on the money you owe the bank.

With Infinite Banking, or Being Your Own Bank, you’d be borrowing from your own funds, avoiding this need to pay interest to a bank.

So where did you get an asset large enough to make a bank loan unnecessary? Infinite Banking assumes you had the asset growing all along within your whole life insurance policy.

Using Whole Life Insurance for Infinite Banking

The core purpose of life insurance is to provide a death benefit for your family in case you die. The death benefit could replace your income, pay off your house, or simply pay your final expenses.

Anyone whose financial life is intertwined with someone else’s needs to seriously consider getting life insurance coverage. In many cases, a simple term life policy will do.

Whole life is a more complex type of life insurance. Along with the death benefit, a whole life policy accrues its own cash value, slowly, over time.

After 20 or so years have passed, assuming you’ve always paid the premiums, your whole life policy can hold a significant cash value which will be gaining a modest amount of interest.

This cash value could replace the role of your neighborhood bank when you need a loan.

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Pros & Cons of Infinite Banking

There are advantages to borrowing from your whole life policy, but it may not be a good idea for everyone.

Pros of Infinite Banking

The most obvious advantage to borrowing from your whole life policy vs. borrowing from a bank is avoiding the interest you’d pay a bank.

Other advantages include:

  • Tax Free Access: Unlike with a traditional IRA, you could access money through your whole life policy without paying income taxes on the funds.
  • No Age Restrictions: Unlike with retirement accounts, you could access your whole life insurance cash value at any age without facing a penalty.
  • Preserving the Asset: If you pull money from a 401(k) or IRA, you lower the value of that asset. You’re not actually using your life insurance value, only borrowing against it, so its value doesn’t diminish.
  • Market Independence: No matter what happens with the broader market, your whole life policy’s value should continue to grow at the rate stated in your insurance contract.
  • Asset Protection: If you’re concerned about losing assets in a business or personal legal dispute, the value of your whole life policy is usually protected.
  • The Death Benefit Itself: Even without its cash value, life insurance offers invaluable peace of mind if you’d like to provide for your family after you die.

Cons of Infinite Banking

Using the cash value of whole life insurance as a bank isn’t for everyone. For example:

  • Accruing Value Takes Time: Your whole life insurance’s cash value takes awhile to grow. Within the first 7 to 10 years, your policy wouldn’t be worth very much. It may take 20 or more years for your policy to grow into a useful asset.
  • Contributions Are Compulsory: If you hit a rough patch and can’t afford to contribute to your IRA or 401(k), that’s OK. You could catch up later. With whole life, you’d have to pay the premiums each year or else risk your policy losing value or even lapsing.
  • Whole Life is Expensive: Whole life insurance costs significantly more than term life. If you’re on a tight budget and simply need to protect your family in case you die unexpectedly, you can get more value from term life insurance.

Is Infinite Banking A Good Strategy For You?

There are some great reasons to use the infinite banking concept, including tax-free access to your money – but it’s NOT for everyone.

Best Candidates for Infinite Banking:

Considering these pros and cons, I would have no hesitation recommending the concept of Infinite Banking to the following clients:

  • Financially Secure Clients: Someone who knows he or she can afford the whole life insurance premium year in and year out. As time passes, the money you’re spending on premiums could become a useful asset.
  • Clients With Specific Needs: Someone who can afford whole life and who needs the asset protection or tax shelters a whole life policy can provide. Business people, or someone likely to be sued, often fit this description.
  • Savvy Investors: Clients who want to include whole life insurance in their investment portfolios because of its flexibility as an asset. In these cases, Infinite Banking is just another perk of being ahead of the game financially.

Worst Candidates for Infinite Banking:

It should go without saying: We all have the right to make our own financial plans and decisions.

For some people, though, buying whole life insurance for the purpose of using its cash value in the future may not be the best idea — at least not just yet. A responsible insurance agent should point this out to:

  • Clients With Less Security: If you’re just starting out and you don’t have a lot of extra income, whole life premiums can cut deeply into your financial flexibility. For example, you probably shouldn’t sacrifice your 401(k) match to pay your whole life premiums.
  • Clients Who Need a Lot of Coverage: Younger people with growing families may need $1 million to $2 million or more in life insurance coverage. A term life policy can deliver this coverage much more efficiently.
  • Clients Who Aren’t Planning: Whole life insurance should be part of your larger financial plan. A financial planner is usually better equipped than an insurance agent to help you make a comprehensive plan for your future.

How To Be Your Own Bank

Yes, a loan from the cash value of a whole life policy can create significant savings. Borrowing from your policy requires less hassle, too, when compared to bank loans.

But you’ll need some time to become your own banker, especially if you don’t already have a whole life policy in force and accruing value every year.

In the meantime, you may need to get a mortgage or a student loan — and that’s OK. It’s not financially irresponsible to pay interest on a bank loan if the loan helps you build a more stable life.

If you can build a solid financial foundation and afford whole life insurance premiums, your whole life policy can cover two important bases:

  • Life Insurance Coverage: You’ll have coverage in place for your family if you died unexpectedly.
  • Future Financial Flexibility: As the policy grows in value, the asset could be a source of savings and stability — sort of like a bank — in the future.

If you can’t afford whole life premiums right now, just file this information away and consider a cheaper term life policy. Term life doesn’t hold a cash value, but it can give your family the financial protection it needs if the worst happens.

Click below to find out what my thoughts are.