Interested in Infinite Banking? Weigh the Risks and Benefits

What's the infinite banking concept and should you consider it? Infinite banking relates to insurance, and it comes with risks and benefits.

Kathryn Underwood - Author

Apr. 17 2023, Published 9:46 a.m. ET

A woman looking at infinite banking information on a laptop
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While you may not be familiar with the term "infinite banking," you may have heard of people who have a whole life insurance policy. Infinite banking doesn't refer to bank services available 24/7, but rather to a strategy involving whole life insurance that enables people to borrow from their own accounts. What's the infinite banking concept, and is it a good idea for you?

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According to GOBankingRates, infinite banking has several strong advantages, including no need for credit checks and the ability to borrow money for any reason you wish. However, infinite banking also mainly benefits high-net-worth individuals, and it comes with several drawbacks as well.

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Is the infinite banking concept legit?

When people hear the words "whole life insurance policy" in relationship to infinite banking, red flags may be activated. Although whole life insurance has its downsides, and it isn't for everyone, infinite banking is a legitimate way to plan for your future and finance various needs.

How does infinite banking work?

The infinite banking concept (IBC), as the Corporate Finance Institute notes, was designed by Nelson Nash. His book Becoming Your Own Banker describes people using dividend-generating whole life insurance policies to guide financial decisions throughout life. The cash surrender value of a whole life policy works as collateral for a loan.

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With the IBC, a person takes out a whole life insurance policy and funds it with an initial deposit and recurring deposits. Once active, the policy has a cash value that should increase over time. When the policy holder has a financial need, they can contact the insurance provider to take out a loan against the current cash value.

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The infinite banking concept user might borrow from their cash value rather than getting a vehicle loan.

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A whole life insurance policy can pay out dividends throughout the policy holder's life. That generates income as long as the policy is active, and borrowing from it doesn't negate the policy.

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Keep in mind that a whole life insurance policy is different from a term life insurance policy. "Term" means the policy provides coverage for a limited time, often for 20 years or to a certain age. "Whole life" insurance is a policy that covers the person for a lifetime (as long as they pay premiums on time).

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How can I start infinite banking?

To use the infinite banking concept, you need to open a whole life insurance policy. Be sure to do careful research before selecting a provider and policy. Allstate suggests looking for a provider that will contribute to the policy's cash value or assist with paying premiums.

In order to fund your whole life insurance policy, you'll need to pay premiums that are typically higher than for a term life policy. Whole life policies usually require payment for a certain term as well (you might pay the monthly premiums for 10, 15, or 20 years). Once that period is over, your policy continues to gain value and be available for you to borrow from.

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What are the main benefits of infinite banking?

There are certain benefits available with the infinite banking concept:

  • improved liquidity or cash flow
  • policies aren't tied to stock market fluctuations
  • no explanation required for a loan
  • no need for credit checks
  • tax-free dividends, withdrawals, and loans
  • interest rates may be lower than with other loans
  • whole life policy provides a death benefit at any age
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Infinite banking offers several ways to achieve peace of mind. Being able to borrow money for any reason, without having to go through a lengthy application process or credit check, is helpful. Plus, you can repay these loans at your own pace, and your policy continues to accrue value, even when borrowing. Finally, there is the death benefit at any age, unlike a term life policy.

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A death benefit from any type of life insurance policy helps cover funeral and burial costs.

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What are the main disadvantages with infinite banking?

Of course, there are downsides to the infinite banking concept as well. One of the primary negatives is that a whole life policy can be rather expensive. Monthly premiums are typically higher than those for term life insurance policies, and for many people it is too large a burden on their budget.

Another disadvantage of infinite banking is that unless you're very responsible with your finances, you could miss out on benefits of the policy. You must repay loans on your own schedule, and if you don't, that amount is deducted from the death benefit. Also, if you're older or in poor health, qualifying for a new whole life policy may be difficult.

If your goal is an alternate source of funding throughout your life, plus a death benefit, infinite banking can be beneficial. However, you might achieve equal, or better, results by having term life insurance when needed, and putting your money into other vehicles such as index funds or high-yield savings accounts to grow your assets and improve access to cash.

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