Imagine if every time you needed a car loan, business capital, or emergency funds, you could borrow from yourself instead of a bank. And while that money was "out" being used, it still kept earning dividends in your account. That's the core idea behind Infinite Banking.
This strategy was popularized by R. Nelson Nash in his book "Becoming Your Own Banker." It's not a product you buy - it's a process using a specific type of life insurance policy.
How Infinite Banking Works
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Set up a properly designed policy
You purchase a permanent life insurance policy (typically whole life from a mutual company) designed to maximize cash value growth. This involves using paid-up additions riders and minimizing the death benefit relative to premiums. -
Fund the policy aggressively
You pay premiums above the minimum, channeling as much as possible into cash value while staying below the Modified Endowment Contract (MEC) limit set by the IRS. -
Build your "bank" for 3-5+ years
Cash value accumulates. In the early years, surrender charges exist, but by year 5-7, your cash value typically exceeds your total premiums paid. -
Borrow against your cash value
When you need money, you take a policy loan. The insurance company lends you money using your cash value as collateral. Your cash value stays in the policy, continuing to earn dividends. -
Repay yourself
You pay back the loan on your own schedule with interest going to the insurance company. This replenishes your borrowing capacity for future use. -
Repeat for life
You use your policy for financing needs throughout your life: cars, real estate down payments, business investments, emergencies, education, and more.
Traditional approach: David gets a $30,000 auto loan at 7% interest. Over 5 years, he pays $35,615 total. The interest ($5,615) goes to the bank, never to be seen again.
Infinite Banking approach: David has $40,000 cash value in his policy earning 5% dividends. He takes a $30,000 policy loan at 5% interest. He makes the same $593/month "car payment," but to his policy. His full $40,000 cash value continues earning dividends. After 5 years, his cash value has grown, he's repaid the loan, and he can use it again for his next car.
The Magic: Uninterrupted Compounding
The key advantage of Infinite Banking is that when you take a policy loan, you're not withdrawing your cash value - you're borrowing against it. This means:
- Your full cash value continues earning dividends as if the loan doesn't exist
- The insurance company is lending you their money, secured by your cash value
- Your wealth compounds without interruption
- Over decades, this difference adds up significantly
The biggest mistake people make is trying to use Infinite Banking with a poorly designed policy. A standard whole life policy sold by most agents won't work well. The policy must be specifically structured for high cash value and low commission. Always work with an agent who specializes in this strategy.
Common Uses for Infinite Banking
Financing Major Purchases
- Vehicles (new and used)
- Home down payments or renovations
- Education expenses
- Weddings and major life events
- Vacations and experiences
Business and Investing
- Starting or expanding a business
- Real estate investing (down payments, renovations)
- Investment opportunities that require quick capital
- Business equipment and inventory
Financial Safety
- Emergency fund that earns returns
- Bridge financing between transactions
- Covering unexpected expenses
- Self-financing medical procedures
Advantages of Infinite Banking
- No credit check or approval process: Your cash value is your collateral
- Flexible repayment: You set the schedule (though interest accrues)
- Tax-advantaged: Policy loans are not taxable events
- Asset protection: Cash value is protected from creditors in many states
- Guaranteed death benefit: Your family is protected regardless
- Dividend growth: Participating policies share in company profits
- Generational wealth: Policy can be passed to heirs
Limitations and Honest Considerations
Infinite Banking is not a get-rich-quick scheme. It requires discipline, adequate funding, and a 10+ year perspective to see significant results. It's a wealth-building strategy, not a wealth-creating strategy - you need income to fund the premiums.
Requirements for Success
- Stable income: You must be able to fund premiums consistently for years
- Long-term commitment: 10-20+ year horizon for best results
- Proper policy design: Most off-the-shelf policies won't work
- Discipline: You must actually repay loans to build capacity
- Insurability: You need to qualify for life insurance
Potential Drawbacks
- Slow start: Cash value builds slowly in years 1-5
- Opportunity cost: Money in the policy could be invested elsewhere
- Loan interest: You do pay interest to the insurance company
- Complexity: Requires understanding and ongoing management
- Not for everyone: Best for disciplined individuals with stable income
Whole Life vs. IUL for Infinite Banking
Traditional Infinite Banking uses dividend-paying whole life from mutual companies. However, some practitioners use Indexed Universal Life (IUL):
Whole Life Advantages
- Guaranteed cash value growth
- Predictable dividends (though not guaranteed)
- More stable policy design
- Lower risk of policy lapse
IUL Advantages
- Higher potential growth in good markets
- Premium flexibility
- Lower initial costs in some cases
- 0% floor protects against market losses
Both can work. The best choice depends on your risk tolerance, goals, and personal situation.
Ready to Become Your Own Banker?
We specialize in designing policies optimized for the Infinite Banking strategy. Let's discuss if it's right for you.
Schedule a ConsultationFrequently Asked Questions
Is Infinite Banking legitimate or a scam?
Infinite Banking is a legitimate strategy based on how cash value life insurance works. It's not a scam, but it's also not magic. Results depend entirely on proper policy design, adequate funding, and disciplined execution. Be wary of anyone promising unrealistic returns or treating it as a get-rich-quick scheme.
How much money do I need to start?
To make Infinite Banking effective, most practitioners recommend being able to commit at least $500-$1,000/month to premiums for 10+ years. Smaller amounts can work but take longer to build meaningful cash value. The strategy scales - some clients fund policies with $50,000+ annually.
What if I can't make a premium payment?
Once you have sufficient cash value, you can use it to pay premiums temporarily. However, consistently missing premiums undermines the strategy. This is why stable income is a prerequisite. Some policies also have "reduced paid-up" options if your situation changes permanently.
Do I have to repay the policy loans?
Technically, no - there's no required repayment schedule. However, unpaid loans accrue interest and reduce your death benefit. If unpaid loans plus interest exceed cash value, the policy could lapse. Disciplined repayment is key to making the strategy work long-term.
Why not just use a savings account or HELOC?
A savings account earns minimal interest and doesn't compound when you withdraw. A HELOC depends on home equity and bank approval, plus interest rates can rise. With Infinite Banking, your cash value earns dividends even while you borrow, you control the terms, and it doesn't depend on external approvals or market conditions.
Can I use Infinite Banking for real estate investing?
Yes, this is one of the most popular applications. Investors use policy loans for down payments, renovations, or bridge financing. When the property is sold or refinanced, they repay the policy and repeat. The key advantage is having capital available immediately without bank approval delays.