What is Infinite Banking? (For Beginners)

In our last post, we explored 5 ways to find inefficient funds within your current budget in order to get started funding a strategy like this infinite banking concept...

In this post, I want to give a very basic overview of what this infinite banking strategy is and how it works, but first I want to warn you...

Things are about to get scary!

If you make it through this initial hit, I think you'll be alright...

But brace yourself...

At its core, this strategy requires…

Whole life insurance!

What?!

Oh my goodness!

I know, I know, it’s crazy...

But, hang in there and you'll see that it's more than that...

It’s utilizing whole life insurance as a way to create your own (sort-of) bank.

It can be a little confusing at first, but by the end of this post, I'm confident you’ll understand!

Whole Life Insurance

Whole life insurance is the type of life insurance that lasts for, well...

...your whole life!

This does not necessarily mean that you pay into it your whole life, in fact, many people will choose to stop paying into it at retirement age, with the death benefit remaining for the insured's entire life.

Term life insurance, on the other hand, expires at the end of the term of the contract that you selected or when you stop paying your premiums.

With whole life insurance, you pay the same premium every single month to buy a death benefit, and when the insured person passes away, the beneficiary receives that amount.

Also, with whole life, there's a savings component that grows with your policy.

Finally, with these type of policies (probably more than most things), not all of them are created equal!

There are thousands of agents out there structuring policies from hundreds of different life insurance companies in thousands of different ways…

All of that has a direct impact on how well your policy works—on how well it actually builds cash!

I explain what to look for in much more detail in this video.

This savings portion is known as cash value.

Many companies will allow you to put in extra money—above the premium required to support the death benefit—to go directly into your cash value.

Cash Value

The cash value within whole life insurance will typically grow at a guaranteed percentage.

On top of that, if you are working with the right type of company, your whole life insurance policy will also pay out dividends based on the size of your policy and the company’s profits from that year. 

As a part of the contractual agreement of your policy, you have the option to borrow money directly from the insurance company based on the cash value that your policy has accumulated.

The insurance company will collateralize this loan against your cash value.

So, basically, what they're saying is...

"Hey, we will guarantee you that you can have up to XXXX amount of money (based on your cash value), no questions asked. In return, we'll charge interest on that loan, and if the insured does pass away, we'll simply subtract what you owe from your death benefit..."

For this reason, the insurance company is protected on this loan. This allows many of these insurance companies to offer these loans with attractive terms...

• There’s no formal application vetting process, you just say you want it, and within a week, it’ll be in your checking account!
• They don’t require a specific payback period.
• They don’t require a certain dollar amount to be paid back routinely.
• There's no real structure (so, you’re kinda setting your own terms here)...

In fact, in a lot of cases, you could never pay back that policy loan (as is the case for many who use their policy’s cash value as a tax-free supplement to their retirement income). If you plan to do this, you should definitely know what you’re doing or be working with someone who knows what they’re doing.

I want to repeat this...