The Infinite Banking Concept
"Your need for finance during your lifetime is greater than your need for death benefit."¹
Infinite banking (also known as the Infinite Banking Concept, or IBC) is a method by which you "become your own banker." You manage your cash flows on your terms. Using this approach, you control the borrowing or financing aspects of your life. Examples of how this may be employed include a home purchase, car purchase, or financing higher education expenses.
Individuals can also use this as a cashflow management system and loan their business(es) funds through their IBC policies.
The platform used for infinite banking is a whole life insurance policy with a mutual company that has a long history of making dividend payments to policyowners. Whole life policies have a cash value portion, in which funds accumulate. Your IBC policy will have a paid-up additions (PUA) rider as part of the contract. This rider essentially purchases small chunks of additional insurance and facilitates placement of additional funds beyond your base premium payments into the policy to accumulate in your cash value. When the company makes dividend payments to policyowners, the PUAs you purchased will yield you additional dividends.
To best practice IBC, these policies should be owned by individuals and funded with after-tax dollars.
If you perform an online search or look on social media for information about infinite banking, you may find people advocating use of indexed universal life or other types of permanent insurance policies for IBC. The only policy type that should be used for infinite banking is dividend paying whole life insurance.
IBC policies are designed to be used (funded aggressively and borrowed against). When using infinite banking to finance expenses, you are borrowing against the cash value that has accumulated in your policy (i.e., the cash value serves as the collateral). The insurance company will charge an interest rate for this loan, but you have control over the terms of repayment, including the payment amounts and frequency!
IBC policyowners may elect to annuitize the cash value for after-tax passive income when they are no longer able to work.
It is important to bear in mind there are cash withdrawals from the policy that can trigger a taxable event. A taxable event occurs when more cash has been withdrawn from the policy than was paid in. This is also known as the cost basis. (Policy loans are not considered cash withdrawn from the policy unless the loans are never paid back.)
The primary focus of whole life insurance policies that are not used for IBC is the death benefit that will be paid to beneficiaries. The focus of whole life policies used for IBC is not the death benefit, but the cash value accumulation, and using it to its maximum potential.
This is a high-level overview summary of IBC. I highly recommend reading the following books and listening to [Lara-Murphy Report] podcasts to gain a better understanding of this powerful tool:
Becoming Your Own Banker by R. Nelson Nash
The Case for IBC by R. Nelson Nash, L. Carlos Lara, Robert P. Murphy
I am excited to discuss IBC and show you the potential! Reach out to me to schedule.
R. Nelson Nash, L. Carlos Lara, Robert P. Murphy. (2018). The Case for IBC (1st ed.) Sheridan Books, Inc.¹