What Is Infinite Banking in Life Insurance?

This concept takes advantage of several unique features of life insurance:

1. Life insurance cash value has tax-deferred growth.
2. You can make a simple interest payment on the money you loan out from your life insurance policy.
3. The money you loan against your policy will continue to grow even though you received it.
4. Unlike the traditional banking system, you do not need to financially qualify for the policy loan — you simply request it. If you have the funds in your policy, the insurance company sends you the money.
5. The money you receive from a policy loan is tax-free.

Here’s an example:

Let’s say you have been paying premiums into a whole life insurance policy and you have accumulated $5,000 cash value. When you booked your summer vacation, which costs $3,500, you paid with your credit card. You soon realize that your credit card interest rate is 23.99% plus other fees and expenses.

To make the infinite banking concept work for you, simply request a loan from your life insurance policy. This is accomplished by submitting a policy loan request form. Once they verify the funds available in your life insurance cash value, the insurance company sends you a check or processes it electronically. You can often receive this money within a week or so. Then you pay off your credit card used to pay for vacation and enjoy a lower, simple interest payment, with a loan rate often between 5% and 8% simple interest rate (and the money you borrowed from your policy will still grow inside your life insurance policy).

Here is a quick recap of the steps you need to follow to begin the infinite banking concept:

1. Apply through an insurance agent and qualify for a cash value life insurance policy.
2. Name your life insurance beneficiaries.
3. Pay your life insurance premiums.
4. Once your cash value is high enough for your cash flow needs, you can request a policy loan through a policy loan request.
5. Receive the policy loan proceeds tax-free and directly deposited to your bank account.
6. Use these proceeds for your cash flow needs.

How Much Money Is Needed for Infinite Banking to Work?

In order to make IBC work, you will need to have a cash value life insurance policy with sufficient cash value to borrow against. There really isn’t a specific amount of money needed for infinite banking. It depends on your financial goals and needs as well as how soon you need to access money for the concept.

For instance, if you are willing to save over time to grow your cash value for cash flow needs five to 10 years in the future, you may be able to start with lower life insurance premiums compared to someone who wants to use this concept immediately or within five years. As a rule of thumb, a good minimum goal to shoot for is accumulating $5,000 within the time that you will need the cash flow. The monthly premium payment will vary based on the timeline that you need to achieve that goal. For example, if you will need $5,000 three years from now, you will have 36 months to accumulate that amount, which means you would need to contribute about $140 per month.

Which Type of Life Insurance Is Required for Infinite Banking?

In order to make the infinite banking concept work, you will need a cash value life insurance policy, also referred to as a permanent life insurance policy.

These types of policies include:

Since this personal bank concept relies on the policy’s cash value being available when you need it or expect it to be available, dividend-paying whole life insurance is often the most appropriate product recommendation. This is due to guaranteed cash value growth in whole life insurance, plus the non-guaranteed dividend growth within whole life insurance.

If you choose to look at the other cash value insurance policies for this concept, the biggest difference is the risk involved in the cash value growth component and the lack of guarantees.

Benefits and Downsides of Infinite Banking