CREATING GENERATIONAL WEALTH
BECOME YOUR OWN BANK
Table of Contents
1. What is IBC?
The infinite banking concept (IBC) is a system whereby one becomes their own banker by growing their liquid cash value inside a properly-designed whole life insurance policy while borrowing against it to fund major expenditures, emergencies, and outside investment opportunities.
Utilizing the infinite banking concept rather than traditional banks provides competitive safe growth rates, tax-sheltering, various protection benefits, and most importantly the continuous compounding of their liquid assets even while they’re being borrowed.
2. Who created the Infinite Banking Concept? – History of IBC
IBC was originally laid out by the late Nelson Nash in the very first infinite banking concept book The Infinite Banking Concept – Becoming Your Own Banker. I had the pleasure of speaking to Nelson early in my career on the telephone. He revealed how the IBC came to him as an epiphany while lying in a hospital bed with heart trouble. Nelson later published several iterations of his original infinite banking concept book and became a prophet of sorts with a massive following of infinite banking life insurance agents and consumers.
However, it is documented that famous entrepreneurs like J.C. Penney, Ray Kroc, and Walt Disney used Whole Life insurance as a private bank to either start, grow, or save their business decades before Nelson Nash’s work was published. As you would expect, the insurance products, prevailing interest rates, and adaptation strategies to optimize infinite banking have morphed and evolved over time.
Regardless, I personally credit Nelson Nash for articulating this complex privatized banking strategy in a way that was understandable and actionable for the masses (both consumers and industry professionals alike). Even though I don’t use Nelson’s early text as a strict owner’s manual for the most modern IBC tactics, I honor his work and see the value in understanding the early impetus behind using Whole Life insurance as your own bank to take better greater control of your finances.
3. How Does the Infinite Banking Concept Work?
Yes, the infinite banking concept does indeed work quite well assuming you have a properly structured Whole Life insurance policy and execute the strategy correctly. Similar to how big banks have both savings and lending capabilities, so too does a participating Whole Life insurance policy from a mutual insurance company.
However, unlike how banks offer low-yielding savings accounts, mutual insurance companies offer guaranteed growth between 2-3% in addition to non-guaranteed annual dividend payments. You see, mutual insurance companies are actually owned by their whole life policyholders, hence the word mutual.
Projections in today’s low-interest rate environment produce a long-term internal growth rate of around 4.5%. However, unlike buying a bond or a CD today where you would lock in a low growth rate, future higher interest rates can equate to future higher dividends from a properly-structured Whole Life policy. When you elect to roll these higher dividends back into the policy, they become part of a new guaranteed cash value calculation.
This would entitle you to a bigger cut of future dividend pools, which increase the future guaranteed cash value, and increases your cut of future Whole Life dividends, and so on.
Whole Life policy from 1980 compounded to be far bigger than expected from an initial spike in rates even though the dividend rate plummeted far lower than originally illustrated. Enhancing and maintaining compound interest within the infinite banking life insurance policy is the key factor of its success, despite the gimmicky pitches you’ll hear about IBC.
One last feature of a Whole Life policy’s savings component is the fact that it is tax-free as long as you keep your infinite banking life insurance active until a death claim is paid. Don’t get me wrong, you can utilize your Whole Life cash value all throughout your life. You can even withdraw everything you put in without paying any tax, but in order to access the excess growth tax-free, you must borrow it.
This is a great time to discuss Whole Life’s “loan” component, even though it’s thought of as a 4-letter word. But remember how I said that compounding is the most important ingredient of the infinite banking concept? Borrowing against your infinite banking life insurance policy is exactly how you maintain the compounding of your safe and liquid assets while still using them to fund major expenditures, emergencies, and other investment opportunities.
You see, if you withdraw rather than borrow from your infinite banking Whole Life policy you would be removing assets that could’ve kept compounding on your behalf. The longer you let compounding work for you the better it gets, especially at the upper-right-hand side of the graph. By pulling cash value from your Whole Life insurance policy, you rewind your compound curve to a lower position, not to mention you stunt future growth by receiving a smaller cut of any future dividend pools.
Conversely, if you borrow against your continuously compounding cash value, you never miss a beat on that steepening compound curve while maintaining your place in line for those bigger future dividends.
Regardless of all the gimmicky rhetoric you’ll read/hear on how infinite banking works, this is the true scientific answer. Are there certain products, features, and ancillary strategies which can further optimize IBC’s compounding effect? Sure, but make no mistake about it, maintaining continuous compounding is the most important factor in how the infinite banking concept works.
4. Is IBC Legit or is the Infinite Banking Concept a Scam?
The infinite banking concept is indeed legit. IBC is not a scam. However, many people feel as though they have been scammed after buying a poorly-designed Whole Life insurance policy to act as the engine for their own private family bank.
To be clear, the infinite banking concept is not even something you can buy. It’s simply a methodology of redeploying dormant savings accounts plus ongoing cash flows through a life insurance policy to create continuous compounding on these funds even if they’re borrowed.
So even if you do buy a lackluster Whole Life policy (which hopefully you don’t), IBC will still work, only you want to have as much access to capital early on, and the positive compounding will take longer to kick in. But make no mistake about it, the methodology of harvesting competitive compounding traditional low-interest savings accounts not to mention outgoing cash flows that would otherwise be lost forever is NOT a scam.
Let us assist with the best design of Whole Life to start your own private bank regardless of who & where you work.
Since you are always in control of your policy’s cash value equity, the only way to really get scammed would be if you borrowed against your policy to make a bad investment, but that would be on you not a problem with the infinite banking concept.
5. Pros & Cons of the Infinite Banking Concept
Like any other financial strategy, there are pros and cons to the infinite banking concept. I went to great lengths to painstakingly curate all the IBC pros and cons I could find on the internet while adding balanced context to each.
It’s no accident our group is called Banking Truths. Although our job is selling Whole Life policies customized for each client, we pride ourselves on taking an educational approach while letting clients sell themselves on what’s best for their families. The main benefit to having a daily flow of clients coming from the internet is the lack of urgency we feel to pressure anybody, sugar coat things, or mislead people into thinking the infinite banking concept is too good to be true.
So here is a detailed account of the infinite banking pros and cons with our added educational context:
Pros of the Infinite Banking Concept
1. Compounding of Borrowed Funds in an IBC Whole Life Policy
The ability to earn continuous compounding on borrowed funds is the biggest differentiator of the infinite banking concept compared to other wealth-building strategies. Having a liquid dollar wear multiple hats with your wealth-building efforts while continuing to compound safely within your policy is by far the most powerful component of this IBC.
2. Guaranteed Loan Provision (while growing inside an IBC policy)
Sure, you can borrow against your brokerage account, real estate, or 401k but none of these are guaranteed to be available to you when you may need them the most. If the sky is falling and buying opportunities abound, stocks often lose value eroding your margin borrowing power, home equity lenders revoke their lines, and you may get laid off which would trigger a 401k loan repayment request due in 90 days.
Also, none of these assets are guaranteed to keep growing while you’re borrowing for IBC, which is exactly why the amount you can borrow from these other sources is far less than the 95% loan to value ratio allowed with an infinite banking life insurance policy. Understand how infinite banking policy loans differ from other types of loans including 401k loans.
3. Guaranteed Growth + Dividends of an Infinite Banking Whole Life Policy
Whole Life insurance provides a contractual guaranteed growth rate as well as an interest-sensitive annual dividend (which is not guaranteed). However, the oldest and most solvent true mutual companies can boast they have paid a dividend for the last 150+ years through depressions, recessions, inflation, deflation, and world wars. A couple of the oldest mutual companies were even around to pay Whole Life dividends during the Civil War!
Most everyone seems conditioned to voluntarily forgo any kind of growth rate as long as banks will preserve their liquid capital. Meanwhile, many of the biggest banking institutions keep a large chunk of their Tier 1 capital reserves inside life insurance policies taken out on the lives of their key employees.
“Don’t do what banks & millionaires say …do what they do!”
America’s 2 biggest banks, Walt Disney, Rockefellers, Ronald McDonald was born Ray Kroc, James Cash Penney & more to see how much life insurance they bought and why.
The main reason is that these policies provide big banks, business owners, millionaire family's with a safe yield on their own liquid reserves backed by the oldest and most solvent financial institutions in America. It’s documented that many of these well-capitalized mutual insurance companies were a major force in bailing out banks during the great depression long before FDIC insurance even existed.
4. Tax-Exempt Status of IBC Insurance
The 2nd reason why major banks park billions of their Tier 1 capital into corporate-owned life insurance is the tax-exempt nature of the growth. Think of it as an IBC yield-enhancer of sorts because it’s not about what kind of interest you make, but what you can ultimately keep.
Let’s say for the moment your infinite banking life insurance policy only ever provided a long-term growth rate of 4.5%, but your combined state and federal marginal tax rate is 33%. Assuming you could earn 4.5% from another yield-bearing account, you’d be left with around 3% net after paying your taxes. Put another way, you’d need to earn over 6.7% to net the same 4.5% you got from your IBC whole life insurance policy.
I understand you can find distressed junk bonds or private money loans that may earn more than 6.7%, but do they have a similar risk profile or available liquidity that Whole Life insurance has? I think not. Try this on for size…what if you funneled your cash through an IBC life insurance policy first before borrowing against it to do higher-yielding private money lending? That is the spirit of the infinite banking concept.
Furthermore, as tax rates continue to rise with our swelling national debt, an IBC insurance policy can help you optimize your other assets in retirement by better managing a dynamic distribution strategy. Check out we us on detailed how a properly structured infinite banking concept life insurance policy can act as a tax buffer in retirement.
5. Death Benefit Utility of Infinite Banking Life Insurance
It’s funny how many prospective clients initially tell me they don’t care about the death benefit of their IBC Whole Life policy, yet they also get sad when we illustrate reducing the death benefit in later years to enhance their cash value performance of their infinite banking life insurance. Thankfully you can take a wait-and-see approach with this reduction option since it doesn’t need to be decided at the onset of the policy.
However, the more cash you plan on pumping through your own private family bank, the more death benefit the IRS will require to maintain the tax-exempt status of your infinite banking life insurance policy.
5. If you also need death benefit to protect your family’s financial situation, you may be able to cancel, reduce, or “refinance” a term insurance policies after implementing an IBC Whole Life policy. Unlike Whole Life, term insurance is a straight cost with zero equity or growth. So if you’re able to recoup these lost dollars don’t forget to add that to the total return of your own infinite banking strategy.
What if you could even tap into your tax-free death benefit even while you were living?
Well, certain Whole Life companies have a provision allowing tax-free access to your death benefit if you are deemed too sick or hurt to keep functioning in the world without assistance. Obviously, nobody wants this, but bad things happen to good people without killing them. Certain insurance companies offer this pre-death access to the tax-free death benefit by utilizing the same tax code provisions that a long-term-care policy provides. Depending on the insurance company, this can be a paid option or sometimes even a free rider on the policy. Most clients wouldn’t normally purchase a long-term-care insurance policy (even though they probably should), but they nonetheless appreciate this added layer of protection.
6. Creditor Protection With Infinite Banking Life Insurance?
Another protection that is often touted for the infinite banking concept life insurance is protection from creditors in the case of lawsuits. It’s worth noting that this is not determined by the life insurance company or any special IBC company you choose, but rather by the jurisdiction. Certain states provide full immunity from lawsuits for your life insurance cash value and death benefits, while some offer partial or no protection. Some states even offer protection from bankruptcy.
Creditor protection specialists will often tell you this arena is more art than science, and that the more layers of the onion you have the better chance you have of protecting your assets from creditors & predators. Needless to say, we are not attorneys, so if you are seriously concerned about the specifics regarding the creditor protection of life insurance, you should seek competent legal counsel.
That said, we compiled a state-by-state guide for the creditor protection of life insurance. We do not guarantee its accuracy today since it hasn’t been updated in 5 years, but major movements in this area don’t happen very often.
Regardless, these state-specific statutes are listed clearly, and perhaps they can act as a starting place for you to do your own legal research if you are in the DIY camp.
Ultimate Privacy using IBC
Some folks very much enjoy the privacy aspect of using Whole Life insurance for infinite banking. Unlike banks, brokerage accounts, and even LLC interests that show up on an asset search, Whole Life insurance does not since it’s considered a protection product primarily.
Also, any policy loans you take won’t show up on your credit report. Even certain outside lenders who offer turnkey line of credit programs tied to Whole Life policies for IBC consider it a cash-secured loan and therefore don’t report your balances to the credit bureaus.
Ok, enough about the pros of infinite banking in large print. What about the cons of infinite banking, its downsides, and the fine print not everybody will tell you about?
7. Cons of Infinite Banking
Limited Early Liquidity with Infinite Banking Life Insurance
The first years are always the worst years of any Whole Life policy, regardless of how optimally it is designed. You see, Whole Life is a bundled product and insurance companies recover their expenses with front-loaded cost structures. This is mainly because according to decades of LIMRA studies the average holding period of permanent life insurance has consistently been less than 9 years. As a result, Whole life companies have stacked their products to benefit those who stick with them.
There will be an early hit to liquidity when starting an infinite banking life insurance policy. Normally you will only have access to 66%-85% of your first premium payment after 30-days. However, there are certain infinite banking life insurance policies designed primarily for high early cash value, but these will often substantially lag the best performing Whole Life policies in later years.
It’s interesting to me that this lack of immediate gratification often keeps people from reaping the stacked longer-term benefits of an IBC Whole Life policy. Isn’t there a similar delayed-gratification phenomenon when acquiring investment property or starting a business? You inherently understand that you’ll endure some early costs and lack of liquidity for the extremely valued longer-term rewards.
Isn’t it ironic then that only Whole Life insurance is guaranteed to be a profitable venture and provide guaranteed liquidity all along the way despite the fact that consumers hold a higher level of scrutiny towards its temporary limitations in the early years.
Regardless, we find that it’s common for clients starting an infinite banking Whole Life policy to also have some kind of savings account that’s been sitting dormant for years possibly even decades. I’ll often ask them when the last time they’ve depleted more than 70% of this savings account, only to occasionally find out it’s been several years, but more often than not the answer is “never”.
That being said, we find that this hindered early liquidity drawback to infinite banking is more mental than anything else once thoroughly explored. This is especially true since their policy will have sufficient liquidity after 30 days not to mention most clients have enough ongoing cash flow coming from work income or investment property to replenish their low-yielding savings accounts.
Mandatory Annual Payments Due With Whole Life Insurance
Although a Whole Life policy for infinite banking can be designed to be somewhat flexible, there will still be some level of minimum annual or monthly premium payment due for at least the first 5-7-years. We will discuss different workarounds and bands of flexibility available, but there is no getting around the fact that a minimum premium commitment is the only way you achieve the time-tested and stalwart guarantees of Whole Life policy for IBC.
We’ve found that this mental fear of commitment often keeps prospective clients from exploring their payment options further. If they did, they would find out that the minimum mandatory premium payment due is only about 20%-30% of the maximum allowable premium. Keep in mind that in order to maximize both early and long-term cash value performance of an IBC policy, you will want to pay as much premium as the IRS allows especially in the early years. Once clients understand this, they usually structure a policy to where they know they’ll be able to easily cover the minimum under any circumstances as well as most likely being able to hit the IRS’s maximum allowable limit under normal circumstances.
Keep in mind that in your worst-case scenarios, all Whole Life policies have a built-in feature called APL or automatic premium loan. That way, if for some crazy reason you couldn’t at least pay your IBC policy’s minimum premium then the policy will automatically borrow against its cash value to pay it for you. Not coincidentally this increases the cash value of your infinite banking life insurance, which of course increases the amount you could borrow against in the future. See where I’m going with this?
Qualification Hurdles of an Infinite Banking Whole Life Policy
Unlike most financial products where you can simply point and click to purchase them or just show up at your local branch, acquiring infinite banking life insurance can be much more complicated. Favorably qualifying for an IBC policy will depend on your financial situation, your age, your hobbies, your driving history, your health, and even your immediate family’s health. Before 5 years ago, there was literally no other product or transaction more complex and intrusive than buying life insurance. What other vendor wants your blood and urine before patronizing their business?
Thankfully some of these stodgy old mutual insurance companies are starting to adopt advanced technology making the entire underwriting process quicker, simpler, and less intrusive. Most IBC life insurance companies have migrated to at least some sort of an electronic interface in their underwriting process. Some companies even have ultra-simple point-and-click underwriting where you securely enter your basic data into DocuSign while their artificial intelligence network scours multiple online databases. This process often precludes the need for a lengthy paper application, not to mention a 20-question call-center phone interview, or the literal poking and prodding of a paramedical exam.
To be clear, even the most technologically advanced insurance company still reserves the right to revert to traditional underwriting if they don’t like what they find online. But many of our clients with clean health histories often pass A.I. underwriting with flying colors after just a few clicks. We’ve even had their ideal infinite banking life insurance policy fully issued with the highest rating in as little as 24 hours later.
As far as our clients with more complex issues and health challenges, I can tell you these 2 things:
Don’t disqualify yourself: remember with infinite banking we’re always trying to shrink wrap the least amount of death benefit around whatever cash contribution you’re comfortable with. Even if your health rating comes back sub-optimal, the IRS will allow us to use much less death benefit than someone who is younger and healthier.
Don’t over-exaggerate or over-complicate your situation. It’s true that it’s not as simple as buying a stock online, but this shouldn’t stop you from maximizing a lifetime’s worth of growth on your safe and liquid assets. It may be more work for the agent to help you navigate an acceptable rating, but a savvy group of infinite banking agents (like the Banking Truths Team) can anonymously shop a complex fact pattern to multiple insurance companies who may be willing to unofficially compete for your business before subjecting you to traditional underwriting.
Learning and Maintaining the Discipline Needed for IBC
It’s human nature to get attached to old patterns of behavior and the status quo. So it can be difficult for some people to adopt the process of overfunding an insurance policy only to subsequently borrow against it whenever funds are needed. Also, it can be downright counterintuitive to think of your annual insurance premium as anything other than a pesky bill for a necessary evil cost rather than a limited privilege allowed by the IRS to shelter your savings from taxation while it’s safely growing to increase your future purchasing power capacity.
Change is never easy when it’s new. However, we find like with many other valuable processes in your life, once you get into the swing of things it becomes second nature especially as you start to reap the benefits and see the power of infinite banking along the way.
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