Infinite Banking: How to Become Your Own Bank

Infinite banking is the key to taking control of your finances and becoming your own bank.

If having wealth is like being a King, then becoming your own bank is like being an Emperor.  Because, by becoming your own bank, you don't have to rely on anyone else ever.  

An emergency popped up?  No worries!  You've got it covered!  Need a new car?  That's fine just get a loan from your bank and don't worry about all the fees and headaches of traditional banks.

Sounds great!  But now the question is, how do you become your own bank?  Well, you can do that by using a concept known as Infinite Banking.

The idea behind infinite banking, though it has been around for ages, was popularized in the book, How to Become Your Own Bank , by R. Nelson Nash.  In his book, he describes a way that you can use your life insurance policy to cover all unexpected emergencies, expenses, and even fund your retirement.

Of course, implementing this strategy is not as easy as it seems and it might not be right for everyone.  Especially considering it requires a lot of money upfront and some serious dedication to the process once you start.  

So is infinite banking right for you?  Let's find out.

What is Infinite Banking?

Infinite banking is a concept in which you are able to use the equity you've built up in a life insurance policy to become your own bank.  It involves taking out loans against your whole life insurance as a way to cover emergencies, necessary bills or purchases, and to invest.

First, you build up the equity in your insurance policy by making monthly payments.  Then you can use that equity as collateral and take out loans against it.

Infinite banking can provide a way for you to take and maintain control of your personal finances.  Because, with it, you know exactly how much money you have, and how much you can take out without all the fuss and hassle of going through a traditional bank.  

Plus, you can use the loaned amount for whatever you want.  There are no stipulations or requirements.  And rates tend to be lower than those at regular banks.

Infinite banking has been around for over 100 years and many are using it to build and preserve wealth through generations.  However, to use this concept you must have a participating whole life insurance plan.  Not to be confused with term and universal life insurance.

Life Insurance: What are Your Options?

There are numerous life insurance policies out there but in order to become your own bank the plan must be specifically made for it.  And only a few of these insurance policies would work.

Let's take a quick look at all the life insurance plans out there.  You should know what your options are in order to make the best decision for you and your family.

Term Life Insurance

This type of life insurance only covers the policy holder for a specified period of time (i.e. 10 years, 20 years, etc.).  It offers a fixed payout to the policy holder's beneficiaries should the holder die within the specified time period.  

Unlike other kinds of insurance, there is no savings component nor are there any living benefits with term life insurance.  But, it tends to have the lowest premiums and is quite popular with young people who have children.

The downside of term life insurance is once the term expires, you get nothing.  Plus, if you still want coverage, you'll have to renew the policy and probably pay much higher premiums.

Universal Life Insurance

Universal life insurance is one kind of permanent life insurance which means that you can be covered for the entirety of your life.  So long as you keep paying the premiums, it won't expire like term life insurance.

Unlike term life insurance, some universal policies comes with a cash value component in addition to the death benefit.  This component allows you to build up savings and reap the benefits of investment gains.  Which would be tax-free as well. 

But you have to be careful with these plans as you can also be hit with some heavy losses should the stock market take a hit.  Be sure you truly understand your policy's rules and conditions.

There are three kinds of universal life insurance you can choose from: guaranteed, indexed, and variable.  Each come with their own plusses and minuses such as being able to adjust your premiums and death benefits.

Unfortunately, if you want to do infinite banking, this type of life insurance, while similar, is not recommended.  Infinite banking proponents suggest that to do it right, you will need whole life insurance.

Whole Life Insurance

The second kind of permanent life insurance, whole life insurance guarantees your death benefit, premium payments, and a cash value.  Unlike term life insurance, whole life insurance policies offer you benefits while you are living.

These benefits include being able to receive dividends, earning interests on your premium payments, and being able to take out a loan against the cash value of your policy.  

And unlike universal life insurance policies, your cash value is guaranteed and does not fluctuate with the stock market.

With whole life insurance, your premium payments are fixed.  And you can choose whether you want to pay premiums throughout your life or during a certain fixed period.

However, to get whole life insurance you may have to pass a medical exam.  For healthy people under 40, you can expect to pay about $100 per month for every $100,000 in death benefit.

The Cash Value

The cash value is the value of your policy that accumulates as you continue to pay your premiums.  It also increases from the dividends you receive from the company as well as by the guaranteed interest rate determined by your policy. 

If you wish to cancel your policy, it is the cash value that you would receive back.  However, you don't need to cancel your policy in order to reap the benefits of your cash value.

Instead, you could simply take out a loan using this value as collateral.  This is the basis of infinite banking.  Having access to cash that you can draw on as needed.  Of course, a loan is still a loan and you will have to eventually pay it back.  And you should do so with interest.

Additionally, you have the option to use your cash value to cover unexpected illnesses (this would be deducted from your death benefit), to pay for your premiums, and you could even ask the company to add its value to your death benefit.

Participating and Non-Participating Whole Life Insurance

There are two types of whole life insurance: participating and non-participating.  Participating whole life insurance allows you to benefit from the insurance company's profits.  This means that you can get dividends depending on the amount of profit the company has at the end of the year.

On the other hand, non-participating whole life insurance means lower premiums but you do not get the benefit of receiving dividends from the company.

All in all, whole life insurance offers you easy access to the money you have invested.  You can choose to withdraw the cash value of your policy at anytime but anything above the premiums you've paid would be taxable.

To avoid that you could, instead, take out a loan against your cash value.  This gives you access to tax-free money that you can use however you see fit, including investing in real estate or buying a new car.  

Since it is a loan, you will have to pay it back at some point with interest.  The good news here though is that you get to decide when and how you will pay it back.  Any unpaid portion will be deducted from your death benefit.

Things to Note: 

Only mutual life insurance companies give dividends since, as a policyholder, you are a shareholder of the company.  So for infinite banking you will need participating whole life insurance provided by a mutual life insurance company.

How Infinite Banking Works

Many proponents of infinite banking proclaim that it is one of the most underrated ways of building wealth.  And here's how it works in a nut shell.

First, to be able to do infinite banking you'll need a participating whole life insurance policy with a cash value.  This means, depending on your policy, that you have already been paying your premiums for a few years now.

So, now that you have some cash value in your plan, you can take out a loan against it.  You'll want to do this instead of taking a withdrawal because then you allow your cash value to continue growing with added dividends and interest.

Of course, the loan you will have to pay back plus interest but essentially you will be paying yourself the interest as it will go back into your plan's cash value.

As your cash value grows, you'll have access to more and more money which you can then use to cover emergencies, renovate your house, or make other investments such as purchasing real estate.

The best part is there are no restrictions on what you can use the money for and you don't have to deal with bank fees, credit checks, etc. as you would with normal banks.  

Infinite banking gives you access to cash fast, without all the hassle.  This is how you become your own bank.

The Steps

1. Sign up for a participating whole life insurance policy with a mutual life insurance company.
2. Fully fund your life insurance policy.
3. Take out a loan using the cash value of your policy as collateral.
4. Continue making your premium payments.
5. Pay back the loan plus interest.
6. Take out more loans.
7. Rinse.  And Repeat.

As your cash value grows, you'll be able to take out bigger and bigger loans.  But if you need more leverage, you can always get another whole life insurance policy and fully fund that.

The Pros and Cons of Infinite Banking

Infinite banking is great in the sense that, if done right, you will never have to rely on a bank again.  It gives you quick, easy access to cash when you need it most.

But it is not all sunshine and daisies.  There are some downsides to infinite banking, such as the high premiums associated with whole life insurance.  Furthermore, it might take you a few years of paying extra on your plan before you can even become your own bank.  So, depending on your situation and financial goals, infinite banking may not be for you.

Check out some of the pros and cons of infinite banking below before you decide.  And as always consult with a financial professional.

Pros

Cons

Who Can Use Infinite Banking?

In theory, anyone can use the infinite banking concept.  However, not everyone will be able to do so successfully.  

In order to use infinite banking you need to be someone with stable, consistent income.  You'll also need to have good money management skills, as before you can reap the benefits of infinite banking you must first be able to consistently save a good portion of your income.

Furthermore, you will need to have the dedication to see it through once you begin and the commitment to paying back the loans with interest.  Stopping halfway does no one any good.

Unfortunately, for some, you won't be able to implement the infinite banking strategy because you aren't unable to secure whole life insurance.  The strategy relies on it and without it you won't be able to use it correctly.

All in All

Infinity banking could provide you with the chance to finally be in control of your finances and help you build generational wealth.  And you can do so through your whole life insurance policy.

Having whole life insurance set up so that you can take out loans against your cash reserves, gives you access to fast cash.  It helps maintain a liquidity comparable to having cash in a regular savings account but with guaranteed interest rates, dividend payments, and the added possibility of it increasing your death benefit.

Despite all of these benefits, infinite banking is not for everyone.  And while there are a lot of amazing things that come from infinite banking, there are a lot of things that could go wrong.

Take the time to do your research.  Talk to an insurance professional and see if it fits with your future financial plans.  Then make sure your insurance policy has everything you need to truly become your own bank.