The Infinite Banking Concept Explained | Easy Shoppers Guide

What is Infinite Banking?

The infinite banking concept was coined in the early 2000s by an insurance agent named R. Nelson Nash in his book “Becoming Your Own Banker.”

However, this popular concept has been around for many years with other names, such as:

• 7702 life insurance
• Family Banking Concept
• Bank On Yourself
• Perpetual Wealth Strategy
• Perpetual Wealth System
• Circle of Wealth

The basic idea behind infinite banking is to use your assets for significant purchases instead of getting a loan from a bank.

You do that by purchasing universal or whole life insurance policies that offer cash value accounts for preserving your money.

The cash values function as forced savings account within your policy which accumulates tax-deferred over time.

The Infinite Banking concept requires payments above the premiums to keep the policy in force (overfunded) to accumulate excess cash values tax-free.

You can eventually withdrawal or borrow accumulated cash values after paying premiums on your policy for several years.

When you borrow from the policy, your cash value is utilized as collateral on the loan instead of other investments.

Policy loan rates are lower than bank loans because the insurance company understands that it can easily take the collateral if you do not make payments.

Taking a loan against your policy does not interrupt the compounding interest inside your policy, which is an essential difference from completing a withdrawal.

Because loans are liquid, they can help with major personal expenses such as car purchases, medical bills, unemployment income, home repairs, and retirement income.

This banking concept can also be ideal for younger wealthy business owners or real estate investors looking to expand their businesses.

Plus, you will not need to go through the traditional approval process of getting a loan from a financial institution.

How does your cash value work?

• Whole Life Insurance – Whole life is popular for infinite banking because the cash values, premiums, and death benefits are guaranteed, while dividends can fluctuate.
• Universal Life Insurance – Universal life policies are not frequently used for IBC because they offer lower fluctuating interest rates.
• Variable Universal Life – VUL is riskier because the interest paid in a variable life policy is based upon the performance of the mutual fund sub-accounts inside the policy.
• Indexed Universal Life – IUL policies are safer because the interest rates are only linked to the performance of an underlying financial index such as the S&P 500 Index.

Each type of life insurance has trade-offs and should be selected with your unique risk threshold, much like conventional investments.

Policies that generate better cash values have increased performance risk, as the returns could be better or worse than initially projected.

Infinite Banker Buyer Profile

Infinite banking using life insurance works for those who want to minimize losses from their stock market and mutual fund investments.

Certain people are better suited to become their own bankers because this strategy requires strict discipline and must be executed for a long time to see beneficial results.

• High Earnings or Net Worth – The infinite banking system is perfect for high-income earners that can allocate up to 10% of their income towards a policy.
• Years Until Retirement – The infinite banking system takes time to reach its peak efficiency. So, most Infinite Banking clients are generally between 25- 50 years old.
• Already Maxing Out Retirement Plans – Before considering the infinite banking system, you should be maxing out your 401(k)s and IRAs because employers often will match your contribution to a specific limit.