Infinite Banking: A Comprehensive Guide to Becoming Your Own Banker in 2025
Written by Daniel Ray, Life Insurance Expert |
✅
Fact Checked by
Lisamarie Monaco |
Editorial Disclosure
The Infinite Banking Concept (IBC) empowers individuals to become their own bankers by leveraging whole life insurance policies. By accumulating cash value within a policy, policyholders can borrow against it, facilitating personal financing without relying on traditional banks.
This guide delves into the mechanics of infinite banking, its advantages and disadvantages, and addresses common questions to help you determine if this strategy aligns with your financial goals.
What Is Infinite Banking in Simple Terms
Infinite banking is a financial strategy where individuals use whole life insurance policies to create a personal banking system. By overfunding a policy, it accumulates cash value, which can be borrowed against for various needs, such as investments or large purchases.
This approach allows policyholders to control their finances, potentially bypassing traditional banking institutions.
*Ballpark TERM Quote
Is Infinite Banking Legit
There is a question! Is it? Are all these things you are hearing about IBC the truth? Yes, in many ways it is a safe investment strategy.
Overall, Infinite banking is when you maximize your whole life insurance policy cash value growth to become your own banker as your liquidity is always sound.
Above all, when your agent or the agents in the industry make the infinite banking concept seem bad it is because they have an agenda to selling other financial products, PERIOD!
Infinite banking is nothing more than a safe way to maximize wealth with no loss provisions and less risk with a dividend-paying whole life policy.
How Does Infinite Banking Work?
If you were like me, the concept of infinite banking seems very intriguing.
The concept allows businesses and households to become their own bank or bankers. Imagine that!
A man by the name of Nelson Nash learned the mechanics of whole life insurance which is the foundation or platform that IBC is practiced or implemented. This is really the best way to use life insurance as an investment.
Furthermore, the basic idea behind infinite banking is to be your own banker or having a bank of yourself plan. This system is dividend-paying, permanent life insurance or in most cases called dividend-paying whole life insurance.
In fact, most whole life policies provide dividends which is a fraction of the insurance company profits.
These are paid to policyholders or members if it is a mutual insurance company. Dividend rates are often determined by the money paid into the policy.
- Policy Selection: Choose a dividend-paying whole life insurance policy from a reputable mutual insurance company.
- Overfunding: Contribute more than the standard premium to accelerate cash value growth.
- Cash Value Accumulation: The overfunded portion increases the policy’s cash value, growing tax-deferred over time.
- Borrowing Against Cash Value: Once sufficient cash value is accumulated, you can take out loans against it, using the funds for various purposes.
- Repayment: Repay the loan on your terms. Unpaid loans may reduce the death benefit and cash value.
- Continued Growth: The policy continues to earn dividends and interest, even on borrowed amounts, due to the collateralized nature of the loan.
So, what is infinite banking life insurance?
Having a cash value paying participating whole life insurance policy that is paying dividends would be liable for taxes far and above the premium payment that is paid. However, policy dividend payments are generally 100 tax-free.
This is a big concept on wall street with affluent business owners. We will go over finding the best whole life policy for infinite banking in this article.
IBC Pros and Cons
Pros and Cons of Infinite Banking
Pros
- Tax Advantages: Cash value grows tax-deferred; loans taken are generally tax-free.
- Guaranteed Returns: Whole life policies offer fixed growth rates, providing financial predictability.
- Flexible Loan Terms: Borrow against your policy without traditional credit checks or approval processes.
- Control Over Finances: Reduces reliance on traditional banking systems, offering personal financial autonomy.
Cons
- High Premium Costs: Whole life insurance premiums are significantly higher than term life policies.
- Complexity: Understanding and managing an infinite banking system requires financial literacy and careful planning.
- Potential Policy Lapse: Unmanaged loans and interest can diminish cash value, risking policy lapse if not monitored.
- Opportunity Cost: Funds allocated to insurance premiums might yield higher returns if invested elsewhere.
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Infinite Banking Concept Life Insurance, Will It Work For You?
Again, understanding the benefits of the concept can be very intriguing. The main goal when purchasing a whole life policy with paid-up additions with a mutual company is for cash value accumulation.
Like the Nelson Nash institute explains, accelerated cash flow can be used down the road for a tax-free income. In fact, the dividend rates range between 5%-7% with the best companies.
When using this for a tax-free income vehicle you never have to pay back the loan, you are the bank!
Over time, the death benefit grows with the cash value.
A big believer in this strategy is a NY Times bestseller by the name of Pamela Yellen. She is known for the saying, “Bypass Wall Street, beat the banks at their own game, and take control of your financial future!”.
Here are some of her books:
Understanding Infinite Banking Whole Life Insurance
Understanding the concept of whole life insurance infinite banking is really not too complex.
Although these policies have many moving parts and can be customized in many ways, understanding infinite banking can be simple.
The main goal is to be your own bank! To generate cash flow for the long term earning an interest rate and earn dividends with a guaranteed death benefit.
However, if you are looking at this strategy as a death benefit first and foremost, then you are in the wrong product and maybe a term life insurance policy will better suit you or a final expense policy with Mutual of Omaha.
But if your main goal is to have cash flow, deferred paying taxes (Or Tax-Free Income), compounding interest then the infinite banking concept will work for you.
Being your own bank can provide you the necessary financing for a real estate investment, or starting a business.
Above all, knowing that you don’t have to deal with the traditional banks for financing tends to give the consumer peace of mind. Its personal finance at its best!
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Term Rider and Infinite Banking, How Does It Work?
Above all, finding the best whole life policy for infinite banking is very important. Also, in some cases, adding a term rider can assist in maximizing cash accumulation.
This combination, when done right will utilize high cash value whole life insurance to accomplish safety, liquidity, and growth.
The flip side is the cash value is limited by the Modified Endowment Contract (MEC).
The importance of understanding specially designed life insurance is key because of the tax complications that could arise.
Keep in mind, withdrawals or loans from the MEC can result in being taxed on a last-in, last-out (LILO) basis instead of a first-in, first-out (FIFO).
Any taxable gain coming out is reported as the nontaxable return of principal.
For instance, being under the age of 59.5 may have to pay a 10% penalty tax for withdrawing that is too early.
As I stated above, this is where the term rider comes into play. It is an add on product that gives us term insurance added on top of the permanent or whole life policy.
In this case, the rider provides more insurance (in some cases up to one million dollars), which raises the ceiling on the MEC line giving us more room. This results in more cash value immediately and buys less whole life insurance.
Again, the result is more cash value by the end of year one and is also money that can be borrowed and utilized right away.
This is what the benefit of the infinite banking concept is. It buys more cash value and keeping tax advantages.
Term Rider
A term rider is an additional feature attached to a whole life insurance policy, allowing for increased death benefit coverage for a specified period. This rider is particularly cost-effective and enables policyholders to maximize their death benefit while keeping initial costs lower.
Nelson Nash would view a term rider not just as a tool for increased death coverage but as a mechanism to:
Key Benefits of Using a Term Rider in Infinite Banking
Enhance Cash Value Growth
By reducing the base premium and attaching a term rider, more of your premium can be allocated to the Paid-Up Additions (PUA) rider. This accelerates cash value growth, a critical component for infinite banking.
Maintain Affordability
The term rider allows individuals to start policies with a higher death benefit and lower initial premium, making it more accessible for those beginning their infinite banking journey.
Infinite Banking
Infinite Banking is the practice of leveraging the cash value of a whole life insurance policy to become your own banker. The process involves:
Core Aspects of Infinite Banking
Funding the Policy
By overfunding the policy with additional contributions to Paid-Up Additions (PUAs), cash value grows faster. This cash value earns guaranteed interest and potential dividends.
Policy Loans
The cash value can be borrowed against for any purpose (e.g., investing, debt repayment, or business funding). When you take a loan, the policy continues to grow uninterrupted, as the loan is collateralized by the death benefit.
Repaying Loans
Repaying loans, with interest set by you, replenishes the policy, mimicking the operation of a personal bank. This reinforces the system and creates a cycle of uninterrupted growth.
How a Term Rider and Infinite Banking Work Together
Nelson Nash might describe the synergy between a term rider and infinite banking like this:
Role of the Term Rider in Infinite Banking
Maximizing Death Benefit
The term rider allows the policyholder to maximize the death benefit relative to their initial premium payment. This higher death benefit provides greater room to fund Paid-Up Additions (PUAs) without causing the policy to become a Modified Endowment Contract (MEC), which has unfavorable tax implications.
Accelerating Cash Value Growth
More PUAs mean a faster-growing cash value, which is the cornerstone of Infinite Banking. This cash value can then be accessed via loans for banking activities.
Transition Over Time
Over time, as cash value and whole life coverage grow, the need for the term rider diminishes. The term rider can then be reduced or dropped, with the whole life component fully sustaining the infinite banking process.
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In Nash’s Words
“You’re designing a system where your dollars are doing multiple jobs—providing protection, liquidity, and growth. A term rider is a stepping stone, allowing you to structure your policy for maximum efficiency without breaking the bank. This is all about long-term thinking—building a personal banking system that serves you for life and even beyond.”
In essence, the term rider is a strategic tool to optimize the design of a whole life policy for Infinite Banking, especially in the early stages.
What Is A Modified Endowment Contract and IBC
It’s important to understand modified endowment contracts or MEC.
What is a MEC?
It is when the premium paid is in access to the premium test. This was part of TAMRA in 1988. Once you go over the MEC requirements then it can never be reversed. Above all, it is very important to stay away from that line.
What are the tax implications of a MEC?
Overall the death benefit is still and always income tax-free. However, if there is again, a withdrawal and or a loan will be taxable up to the amount of the gain. In addition, the policy owner is under 59.5 a 10% federal tax would apply. So if you violate MEC it defeats the entire purpose of the IBC.
Who is the perfect candidate for IBC?
The perfect client for this strategy will be mid 40’s to mid-’50s. In addition, will need some sort of life insurance. A good candidate would have assets that are not performing well. Furthermore, they will want long term cash accumulation. This type of client will also be concerned about future tax increases.
Infinite Banking Retirement Plan, Is It Really Tax-Free?
Do you have a retirement plan?
Are you concerned about your financial future?
Infinite banking resembles a high growth savings account. Because term insurance is so much cheaper than permanent life insurance, we only purchase it for a few years. This is when it is great for being used for retirement accounts.
In fact, that is when the whole life gets to the point it is not needed anymore. Remember the game plan is to the growth of the cash value via Paid-up additions and life insurance dividends, not the insurance!
What will my loan rate be? Will this be tax-free?
There are two alternatives to obtaining tax-free retirement income from your IBC.
The first, to take loans against the cash value, and by doing that they are not taxable!
Second, income can come from policy withdrawals that equal the premium payments that are made to the policy. Moving forward you would take policy loans against the CV. This results in your income not being taxable!
The great advantages of an infinite banking concept are you will receive a tax-free retirement income.
Steps to Implement Infinite Banking
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Define Objectives
- Primary Goals:
- Build accessible cash value for investments or emergencies.
- Create a tax-advantaged retirement strategy.
- Leave a legacy or cover long-term financial obligations.
- Secondary Goals:
- Protect family with life insurance coverage.
- Gain financial control and independence from traditional banks.
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Choose a Whole Life Policy
- Opt for a Participating Whole Life Insurance policy from a mutual insurance company offering non-direct recognition loans.
- Base Policy: Ensure a base death benefit sufficient to provide protection and allow maximum Paid-Up Additions (PUAs).
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Add Term Riders
- Why Term Riders?
- Increase total death benefit temporarily while keeping initial premium costs manageable.
- Free up cash flow for higher contributions to PUAs.
- Choose a convertible term rider to lock in future insurability.
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Maximize Paid-Up Additions (PUAs)
- Allocate a significant portion of premiums to PUAs to accelerate cash value growth.
- Keep premium-to-cash-value ratios aligned with Modified Endowment Contract (MEC) limits to preserve tax advantages.
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Establish Funding Strategy
- Annual premium budget: 10-15% of gross income (~$30K-$45K annually).
- Example premium structure:
- Base Policy Premium: $6K-$9K/year.
- Term Rider Premium: $1K-$3K/year.
- PUA Contributions: $23K-$33K/year.
- Front-load the policy with higher PUAs in the early years for faster compounding.
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Utilize Policy Loans for Infinite Banking
- After building sufficient cash value (2-5 years), use policy loans for:
- Investments (e.g., real estate, business expansion).
- Major expenses (e.g., college tuition, vacations).
- Maintaining liquidity while earning uninterrupted compounding.
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Ongoing Management
- Monitor policy growth annually.
- Adjust PUAs and term rider as income grows or financial needs evolve.
- Evaluate converting the term rider to permanent coverage before it expires.
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Optimize Legacy Planning
- Use the whole life policy as a foundation for estate planning.
- Designate beneficiaries and explore irrevocable life insurance trusts (ILITs) for estate tax efficiency.
Infinite Banking For Seniors
Not to sound like a broken record, but in the previous paragraphs above it really lays out how the Infinite Banking Concept can offer a tax-free income at retirement.
But let me be very clear, IBC is probably not the best Idea if you just are looking to jump into this over the age of 65. In fact, this is the type of strategy that needs years if not decades to bake.
This is something to start in your 30’s and 40’s for when you are in your 60’s and 70’s. For instance, after you retire and you want to start that new business or draw off to supplement your income.
Above all, if you do start this over the age of 65, it would be best if it was a 1035 exchange whereas you are rolling over cash value from one policy to another because of the new product offering a better dividend and terms.
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Be Your Own Bank Life Insurance
When you use this concept as “being your own bank”, then you will have the excess cash available for many things. Think about that, not going to a bank for the money. Not going through the underwriting or having the bank go through your finances.
With the infinite banking concept, you can simply just borrow the cash from yourself! You want that piece of real estate, GO GET IT! You want to invest in a business venture, DO IT!
When you combine the interest, divided and the PUA you really accelerate the cash for a solid rate of return. Take it from the experts like Nash and Yellen, there have been much infinite banking case study’s, the IBC strategy works great!
What Is A 770 Account For Using The Infinite Banking Concept
When using these specially designed life insurance contracts the term 770 account comes to mind.
This refers to IRS code 7702. This IRS code surrounds and overseas cash value life insurance and cash value whole life policies.
This is the code that makes Infinite banking possible.
This code makes life insurance tax deferred as long as the life insurance meets the criteria. As long as it does so the policy can remain tax-free.
Section 7702 refers to life insurance contracts issued after 1985. Section 7702 will also determine how life insurance contracts should be taxed.
These 770 accounts or investment strategy offers competitive, steady returns with limited to no risk! It shouldn’t be a shock that agents will try to sell this offering much higher returns to make the sale.
Again, the infinite banking concept utilizes a participating whole life policy from a mutual company with the goals of self-financing. It has nothing to do with mutual funds.
10 Best Life Insurance Companies For Infinite Banking
It’s important to understand which best companies for infinite banking. But first, it’s important to understand the difference between direct vs non-direct recognition companies.
It is understandable that policy loans will wreak havoc on the dividend rate paid on the policy cash value. But taking loans is a major aspect of the growth of the policy.
While the infinite banking world often favors non-direct recognition life insurance companies over direct recognition ones, DRC still performs well when using infinite banking strategies!
Who has the best rates for whole life insurance?
Top 10 Life Insurance Companies for Infinite Banking
- Foresters
- Penn Mutual
- Ohio National
- MassMutual
- Trust Mutual
- Minnesota Life
- Guardian
- Ameritas
- New York Life
- American United Life (AUL)
- Northwestern Mutual
These are some of the best infinite banking insurance companies. All these are great for IBC. For example, MassMutual infinite banking is not our choice, but Foresters Advantage Plus II Whole life insurance is.
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Best Whole Life Insurance For Infinite Banking
When you are getting involved with the infinite banking concept IBC its exciting to realize you the benefits. I recommend Nash’s book becoming your own banker. It really is a good read.
The most important part of this is finding the best life insurance companies available.
Above all, you want them to have the highest rating, pay dividends, pay a nice interest rate so the cash value life insurance accelerates over the long term.
What life insurance company pays the highest dividends?
Our top three picks are:
- Foresters
- Mutual Trust
- Penn Mutual
These are high recognition companies when implementing this strategy.
Infinite Banking Concept Reviews
Infinite banking reviews? Is Infinite banking scam?
Becoming your own banker seems like it is too good to be true. Is infinite banking a scam?
Most CPA’s that are approached with this strategy are intrigued. This is a wealth-building strategy. Obviously this is an uncommon way to look at retirement.
To put it simply, R. Nelson Nash best explains the concept of funding a whole life with paid-up additions.
With this approach, you can borrow from the policy’s cash value to finance things like real estate investments or supplement your income.
Check out the Nelson Nash Institute. There is a wealth of information, resources, and training.
Here are some of the things you may have heard from financial planners that are uneducated about the IBC:
- High Commissions for the agent (Only reason why it would be offered) NOT TRUE.
- Cash Value does not accumulate until 7-8 years later. NOT TRUE.
- Rate Of Return Is Dismal. NOT TRUE.
The IBC allows you to draw down cash value and use it as a tax-free income.
This concept is a way to leverage your life insurance policy to invest in everything else.
Here are some examples of how the people that you would least expect got a start in their business:
- Walt Disney could not get a loan to finance his vision, instead, he used the cash value in his life insurance policy to start Disneyland,
- The owner of the Pampered Chef borrowed $3000 from her cash value policy and started the company!
SO IBC is not a scam. It is a way to finance your purchases and paying yourself back. It is a fantastic vehicle to use to purchase for your kids as well.
If you are able to invest 10k a year over 7 years into an IBC strategy, your kids could have 7 figures in that policy by the time they hit their 40’s.
How about that for a legacy gift!
FAQ’s
Infinite Banking is a financial strategy that allows individuals to become their own bankers by leveraging the cash value of a specially designed whole life insurance policy. This approach enables policyholders to borrow against their policy’s cash value for various financial needs, promoting financial independence and wealth accumulation.
Whole life insurance provides a permanent death benefit and accumulates cash value over time. In Infinite Banking, policies are structured to maximize this cash value, allowing policyholders to access funds through policy loans. These loans can be used for investments, debt consolidation, or other expenses, with the advantage of paying interest back to one’s own policy rather than to a traditional bank.
A term rider is an add-on to a whole life insurance policy that provides additional term life coverage for a specified period. In the context of Infinite Banking, a term rider increases the policy’s death benefit temporarily, allowing for higher contributions to the policy’s cash value without violating IRS guidelines related to Modified Endowment Contracts (MECs).
Incorporating a term rider allows for a lower base whole life premium while increasing the death benefit. This structure enables higher contributions to paid-up additions (PUAs), accelerating cash value growth and enhancing the policy’s efficiency for Infinite Banking purposes. Additionally, it helps prevent the policy from becoming a MEC, which would have adverse tax implications.
Paid-Up Additions are additional amounts of whole life insurance that a policyholder can purchase using dividends or additional premiums. PUAs increase both the policy’s death benefit and cash value, contributing to the policy’s growth and the effectiveness of the Infinite Banking strategy.
The design of a whole life policy is crucial for successful Infinite Banking. A well-structured policy typically includes a combination of base premiums, PUAs, and term riders to maximize cash value growth while maintaining tax advantages. Balancing these components requires careful planning and expertise.
When properly structured, loans taken against the cash value of a whole life policy are generally tax-free. However, if the policy becomes a Modified Endowment Contract (MEC), withdrawals and loans may be subject to taxation. Including a term rider can help prevent MEC status by allowing higher premium payments without exceeding IRS limits.
Existing whole life policies can potentially be adapted for Infinite Banking, but they may require restructuring to optimize cash value growth. This process might involve adding riders or adjusting premium payments. Consulting with a financial professional experienced in Infinite Banking is recommended to assess suitability.
While Infinite Banking offers benefits like financial control and potential tax advantages, it also carries risks, including policy lapse if premiums are not maintained, potential tax liabilities if the policy becomes a MEC, and the opportunity cost of tying funds into a life insurance policy. Thorough understanding and careful planning are essential.
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Conclusion
Infinite Banking is when you maximize your whole life insurance policy cash value growth to become your own banker as your liquidity is always sound.
But, IBC isn’t just a simple plan and it does not come without some risk.
That’s why we’re here! We are an independent agent that can provide unbiased advice on term riders, how they work with IRA’s or 401K’s and what the risks may be for each individual situation.
Our team of experts would love to help you find out more about this type of investment strategy so don’t hesitate to reach out today!
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