Infinite Banking
What it is, how it works, and who it may or may not fit — in plain English.
Most of us borrow from a bank and pay the bank interest. "Infinite Banking" is an idea popularized by author R. Nelson Nash that asks a different question: what if you built up your own pool of money and borrowed from that instead? The tool used is a specially designed, dividend-paying whole life insurance policy.
What kind of policy it uses
Whole life, not term
Term insurance has no cash value. This approach needs a permanent policy that builds cash value you can borrow against.
Dividend-paying
Usually from a mutual company owned by its policyholders. Dividends can help cash value grow, but they are not guaranteed.
Built for cash value
The policy is set up differently than a typical one — often with "paid-up additions" — so more of each premium goes toward cash value.
Designed carefully
Put in too much, too fast, and the policy can become a "Modified Endowment Contract," which changes how loans and withdrawals are taxed.
How it works
- Fund. You pay premiums into the policy.
- Grow. Cash value builds over the years, tax-deferred.
- Borrow. When you need money, you take a loan from the insurance company, using your cash value as collateral.
- Repay. You pay the loan back on your own schedule.
Possible benefits
- Cash value grows tax-deferred.
- Policy loans are generally not taxed as income, as long as the policy stays in force and is not a Modified Endowment Contract.
- The death benefit is generally paid to beneficiaries free of federal income tax.
- No credit check for a policy loan, and a flexible repayment schedule.
Things people find out too late
- It takes years. Cash value is usually low in the early years of a policy.
- Loans are not free. They charge interest, and any unpaid balance reduces what your family receives.
- A policy can lapse if loans and interest grow too large — and that can create an unexpected tax bill.
- Age and health matter. Coverage costs more as we get older. For many people over 60, other options may fit better.
Is it right for you?
It might be — or it might not. That is what a conversation is for. We will walk through your goals, your timeline, and your other options. If something else fits you better, we will tell you.
For general educational purposes only. Not tax, legal, or investment advice. Policy features, loan terms, dividends, and tax treatment vary by insurer, policy design, and individual circumstances. Dividends are not guaranteed. Consult a qualified tax professional before making decisions.