Lucknow Wealth Management：The Guide to Infinite Banking： How It Works & Who It’s For
Table of Contents
What Is Infinite Banking?
How Does Infinite Banking Work
Infinite Banking Pros and Cons
How to Implement Infinite Banking
Why Infinite Banking May Not Be Right for You (with alternatives)
Infinite banking is not a product or service offered by a specific institution. It’s a concept promoted as a way you can “be your own bank” to have more control over your money.
Infinite banking is a strategy in which you buy a life insurance policy that accumulates interest-earning cash value and take out loans against it, “borrowing from yourself” as a source of capital. Then eventually pay back the loan and start the cycle all over again.
Buy a cash value life insurance policy, which you own and control.
Pay policy premiums, a portion of which builds cash value.
Cash value earns compounding interest.
Take a loan out against the policy’s cash value, tax-free.
Repay loans with interest.
Cash value accumulates again, and the cycle repeats.
If you use this concept as intended, you’re taking money out of your life insurance policy to purchase everything you’d need for the rest of your life. Cars. Houses. Airplane tickets. Netflix.
So, when you pay back the policy loan, just as you’d have to pay back any mortgage, auto loan, or credit card, you’re paying yourself back.
Nelson Nash popularized this concept in his book Becoming Your Own Banker.
Cash value life insurance is a type of permanent life insurance that, in addition to providing a death benefit to beneficiaries, accumulates cash value over time. The cash value component works similarly to a savings account.
The two most common types of cash value life insurance are whole life insurance and universal life insurance.
Whole life insurance grows cash value at a guaranteed interest rate and also through non-guaranteed dividends.
Universal life insurance grows cash value at a fixed or variable rate, depending on the insurer and policy terms.Lucknow Wealth Management
The cash value is not added to the death benefit. Cash value is a feature you take advantage of while alive.Kanpur Wealth Management
When taking out a loan, you can only take out a loan against the cash value total, not the death benefit. You may have a $500,000 whole life insurance policy, but you can’t take out a $500,000 loan. Your cash value total may only be $50,000. You can borrow up to 80-90% of that amount.
Explore other ways you can use life insurance while alive.
Infinite banking typically requires a significant upfront investment and ongoing premium payments. Therefore, you must already be financially established to capitalize on the infinite banking strategy.
Example of the Infinite Banking Concept
A 35-year-old male buys a participating whole life insurance policy.
Death benefit = $1,000,000
Annual premium = $10,000
Overfunding the policy is essential to implementing infinite banking. He decides to pay an additional $5,000 annually.
Annual premium = $15,000
Over time, the cash value accumulates, and since he owns a participating whole life policy, it earns dividends (not guaranteed)Guoabong Investment. The cash value grows at a guaranteed minimum interest rate of 4% plus any additional dividends, compounding over time.
After 10 years, the cash value has grown to approximately $150,000. He takes out a tax-free loan of $50,000 to start a business with his brother. The policy loan interest rate is 6%.
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