Infinite Banking: Becoming Your Own Banker

When you learn the process of infinite banking,  you discover how to tap into your whole life policy and take loans against your cash surrender value for those purchases.

Becoming Your Own Banker

Infinite banking is a financial strategy, sometimes called IBC, or the infinite banking concept, that can allow you to take control of both your savings and your debt needs, helping you become, in essence, your own bank.

Did you know that the average American spends 25% to 35% of their income on interest through things like real estate, new cars, education (student loans), and credit cards and tries to save 10% of what they make?

Conventional financial planning focuses on what to do with the 10% savings portion of your income. The infinite banking concept focuses on how to redirect the 25% to 35% you’ll spend paying off debts like your mortgage, car loans, student loans, and credit cards. Instead of lining the pockets of the bank shareholders, you’ll be lining the pockets of the policy owner, which is you.

If you are curious about infinite banking concept and how it works, keep reading. Because we are about to introduce to how infinite banking works and how it can help fulfill your financial dreams and bring financial freedom to your life.

What is Infinite Banking?

So first things first. What is infinite banking? Infinite banking was invented by finance expert R. Nelson Nash in the early 1980s. At the time Nash was struggling to meet high-interest rates on loans that he had taken out with traditional banks.

He was in financial trouble, and he started to contemplate the reasons behind this. He realized that as long as the banks determined the interest rates and the terms—he would be at their mercy. So Nash decided to find a solution and in doing so he developed a revolutionary yet simple idea: He created the infinite banking concept.

Back in the 1980s, whole life insurance policies were highly common (it was only in recent years that term policies came to dominate the market). Nash realized that he could take control of his personal finances by creating his own bank, or fund, from which to borrow, by taking out a whole life insurance policy and using it to borrow from when needed.

To grasp how this works, let’s look at how whole and term life insurance policies work.

Term Life Insurance Policies Defined

Term life insurance policies are the most common type of life insurance purchased today.

They provide a policyholder with life insurance for a specific period. The terms are based on the individual at the time that they take out the policy.

While term policies are a lot cheaper than whole life policies, they can be more costly in the long run.

For example, a 25-year-old man takes out a life insurance policy for the term of 20 years. He is in excellent health and does not have a high-risk occupation. Therefore, his monthly payments are set to a low amount of $15 dollars per month.

After 20 years, the policy expires. He then takes out a new policy. However, he is now 45 and has pre-cursors for heart troubles. His premium is now $90 per month.

What’s more, he has lost all the money that he put into the initial policy.

Now let’s take a look at whole life insurance policies.

What is a Whole Life Insurance Policy?

Unlike term policies, whole life insurance policies are for the duration of a holder’s life. Some policies have a cut-off point of 99 or 98 years of age. However, at this point, the accumulated policy is then paid out. The holder is then free to pass it on to his or her next of kin.

The drawback to whole life insurance policies is that they initially require much higher monthly payments than term insurance, with the average monthly payment hovering around $165.

However, as time passes, this amount begins to even out against term policy premiums. What’s more—the money invested in whole life policies is yours and is guaranteed to pass to your family, or to you if you live over the age of 99.

Whole Life Insurance and Infinite Banking Work Together

So what is it about whole life insurance that allowed Nelson Nash to it to create a personal bank?

Here is the key. Whole life policies allow you to borrow against the accumulated premiums that you have paid in. While this attracts interest, the interest is set at the time you take out the policy.

This process uses dividend-paying whole life policies as the vehicle for your savings. By using whole life insurance, your savings are guaranteed to grow tax-free and also participate in the profits of the insurance company through a dividend (not guaranteed). Not only is your money in a stable, tax-free growth environment, but you have the freedom to access your funds at any time.

The freedom to access your money at any time is the real power of Infinite Banking. By taking loans out against the accumulated cash values of your life insurance policy, you’ll be maximizing the work of your money. When you take a loan out, your cash values continue to grow and receive dividends even with a loan against the policy.

So, instead of putting cash into a 401k or IRA, and using a bank for the major purchases in your life, you can put cash into your whole life policy and take loans against your cash value for those purchases. As you pay back your loans to your policy, the same way you would with a real bank, you’re the one who recaptures the interest – treating your money the same way a bank does. You have, in essence, become your own banker.

What is more, as the money is actually yours, you can take a loan against it at any time (providing it is equal to, or less, than your accumulated premiums). The insurance company also won’t need to see credit scores, collateral, or proof of employment or income.

Essentially, Infinite Banking allows you to build up your own bank from which you can draw from at any time, without having to jump through hoops or pay high-interest rates. You can use it to finance a new car, buy real estate, or fund any other purchase that you would normally finance through a bank or traditional lender because of limited cash flow.

Not only is Infinite Banking the most efficient way of using your money in your lifetime, but it’s also the most efficient way to pass on wealth to family members, loved ones, or charities.

Benefits of the Infinite Banking Concept

Here are the benefits of the infinite banking concept: