What Is the Infinite Banking Concept?
Infinite banking is a personal finance strategy that leverages a whole life policy as a “personal bank.” The concept involves taking tax-free loans against the policy’s death benefit, using the policy’s cash value as collateral while getting guaranteed interest and dividends on the entire cash value, and being able to pay back your “personal bank” to facilitate even greater financial leverage. This concept provides flexibility, liquidity, and control that people like you need to create financial freedom.
The Infinite Banking Concept is an exercise in imagination, reason, logic, and prophecy. — Nelson Nash, Becoming Your Own Banker, a book by Nelson Nash.
Why do we deposit money in banks? We do so to safely save money, which we can access later to pay bills and make purchases.
Banks are safe places to store money. We can quickly retrieve our cash when needed, but “our money experiences little to no growth while it sits in our account.” On an interest-bearing account, most people average less than 1% interest.
That’s how the banks make tremendous amounts of money! The bank takes in your daily deposits and gives us, for this moment, let us say that we are earning 2% interest on our account. Still, when they lend out our deposits to others or even ourselves for a loan, they lend us the money at a typical interest rate of 6% or higher. The banks make money off the deposits we give them to store our money safely.
Recognizing that depositing our money in banks yields very little interest, we may consider investments as a key to growing our wealth. Investments are undoubtedly a better option for the potential growth of our money, but the reality is that this potential is purely theoretical. It’s not guaranteed because of the risk. There is as much potential for upside growth as downside loss. That means that, unlike banks, investments are not a safe place to store money. Once your money is invested, you typically don’t have quick access if you need to withdraw cash.
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So we find ourselves in a place where we need a haven, like a bank, but one that provides not just potential growth, like an investment, but guaranteed growth. At the same time, we need the money to be easily accessible like a bank.
Would it be beneficial if the growth of your money and the disbursement of your money were tax-free?
What Is The Infinite Banking Concept?
Infinite banking is a personal finance strategy that utilizes a whole life policy as an individual bank. This includes taking loans against the policy and growing cash flow through the insurance’s dividends.
Nelson Nash created the concept of Infinite Banking in the 1980s. Nash was a finance expert and follower of the Austrian school of economics, which advocates that the value of goods isn’t explicitly the result of traditional economic structures, such as supply and demand. Instead, individuals value money and goods differently, based on their economic status and personal needs. Building on this thought, Nash developed the idea of individuals becoming their bankers to achieve their unique financial goals more effectively.
According to Nash, one of the pitfalls of traditional banking was the high interest rates on loans. Many people, including Nash, fell into financial trouble due to their reliance on banking institutions. Individuals lacked control over their wealth if banks set interest rates and loan terms.
Becoming your banker, Nash determined, would put you in control of your financial future. However, for Infinite Banking to be practical, you must have a bank account.
The very first principle that must be understood is that you finance everything you buy – you either pay interest to someone else or you give up interest you could have earned otherwise. — Nelson Nash, Creator of the Infinite Banking Concept
Become Your Bank
Nash determined that the best financial tool for Infinite Banking is whole life insurance.
Infinite Banking is NOT whole life insurance. However, the Infinite Banking concept works best when you, the banker, utilize appropriately structured whole life insurance as your bank.
Using whole life insurance as a financial tool for building wealth wasn’t a new concept in the 1980s. Business moguls like John Rockefeller built fortunes using whole life insurance and used their insurance policies to pass on wealth that has lasted for generations. Large companies often hold millions of dollars in life insurance to help fund business expenses and take advantage of favorable tax benefits. Even banks use whole life insurance as Tier 1 assets.
Whole life insurance was even taught as a course at the Wharton School in Pennsylvania. The curriculum? How can you utilize the cash value of insurance policies to fund business expenses, entrepreneurial ventures, investment opportunities, pay off debt, purchase real estate, invest in precious metals, and more?
The money problem. Only money left over after paying taxes can be spent. For the average person in the U.S., 34.5% of that sum goes to pay interest alone, to finance car purchases, homes, and other purchases. This money is gone forever. It is making people in the banking business wealthy. It can be yours to enrich your life forever–if you get into the banking business. — Nelson Nash
Related: IRS Tax Code 7702 Explained: How It Affects Your Life Insurance
How Does Infinite Banking Work?
The core of the infinite banking concept is a participating whole life insurance policy. Once such a policy is in place, it is possible to borrow against the cash value of the entire life insurance policy as collateral. That avoids paying interest to lending institutions, as a policyholder has their mini-bank. It allows high-speed access to additional funds, just a phone call away from an insurance company.
Participating life insurance means that a policy pays dividends, which allow contributions towards the policy’s cash value or to pay part of the insurance premiums.
If you use a participating whole life insurance policy for Infinite Banking, your cash value increases every time the insurance company pays dividends. It also increases when you pay policy premiums and earn a guaranteed interest rate.
Essentially, your “bank” consists of a portion of premiums paid (money from you), guaranteed interest earned, and potential dividends (money from your insurance company).
Instead of storing your savings in a traditional bank account with minimal returns, consider saving them in your dividend-paying whole life insurance policy, where they grow tax-free and earn a higher rate of return.
Your need for financial resources during your lifetime exceeds your need for life insurance protection. If you solve your need for finance through life insurance cash values, you will end up with so much life insurance that you can’t get it past the underwriters. You will have to insure every person in whom you have an insurable interest. — Nelson Nash, Becoming Your Own Banker
How To Access Your Bank
You can access the cash value of your whole life insurance policy at any time, for any reason, including real estate purchases, tuition, other investment opportunities, business capital, emergency expenses… You name it. However, to fully leverage the Infinite Banking concept, utilizing your cash value as a policy loan rather than a withdrawal is best.
When you utilize the policy loan feature of your whole life insurance policy, your cash value continues to grow, even with the loan outstanding. Every dollar you borrow still earns interest and potential dividends. When you repay your policy loan, you reclaim the interest, not the bank. This is the backbone of the Infinite Banking concept; your wealth continues to grow, even as you borrow against it. You are borrowing from yourself.
Remember that there is only one pool of money in the world. The fact that any number of organizations or individuals are managing a portion of the pool is incidental. — Nelson Nash, Becoming Your Own Banker
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This article was generated with the help of artificial intelligence (AI). AI-generated content may occasionally contain errors or misleading information. The information above is provided for educational purposes only and does not constitute insurance, tax, or legal advice. It is not a recommendation or solicitation to buy insurance. Please consult with your licensed insurance agent at Lucking Life Insurance for more information about life insurance and your specific needs. Please consult with the appropriate professional for tax or legal advice. The claims-paying ability of the issuing insurance company backs guarantees.
Article Author:
Cheri Lucking, CEO of Lucking Life Insurance, and Peter Lucking, Co-author/Web design, CEO of Content Branding Solutions
“Advocate. Business Owner. Protector of Women-Owned Wealth. Helping Women-Owned Businesses Protect, Grow, and Pass on their Legacy. Let’s make sure everything you’ve built doesn’t end with you.” – Cheri Lucking
Cheri Lucking Bio:
She is a published author, has held various roles in advertising, marketing, communicatihttps://contentbrandingsolutions.com/ons, sales, distribution, and product branding and development. Cheri lives with her husband Peter and their dog Coco. Cheri enjoys cooking, gardening, hiking, and wine, although not always at the same time. She loves music and is an avid reader,
She would tell you, “I cannot live without books.” Cheri agrees but would add cheese, the Food Channel, and nature to that list.