Infinite Banking Review

Have you wondered what the Infinite Banking concept is all about? Pamela Yellen later rebranded this as Bank On Yourself (I read the book as part of my research) and there are other labels out there that I am probably not aware of.  I am going to provide my unbiased personal Infinite Banking review.  This is a concept that I tried out several years ago, really as an alternative investment. Infinite banking was created by Nelson Nash and even has its' own trademark and website https://www.infinitebanking.org

What is Infinite Banking and how does it work?

Infinite Banking is a concept that utilizes a whole life insurance policy to allow you to take out loans against the cash value of the policy.  Essentially you are able to be your own banker for yourself by taking loans out and paying yourself back.  This is actually a myth and here is why.  First, you are paying the interest to the insurance company and not to yourself.  Second, you are paying back the cash value that is held in the policy.  Technically this is not paying yourself back.

Non-direct recognition loan

Infinite Banking is glamorized with the idea of being your own banker.  A key point is it only works if the policy allows for a non-direct recognition loan.  Non-direct recognition loans do not "recognize" that the value of the policy is lowered by the amount of the loan.  The dividend is still calculated as if the full cash value is there.  So you are still paid dividends that generally equal the interest you are paying on the loan.  They both were around 5% when I held this policy.  These combination of things give the appearance of being your own bank.  If this is setup with a direct recognition loan the whole Infinite Banking concept falls apart.

Why would the insurance company be willing to do provide a non-direct recognition loan?  Well, I was able to witness the effects on my policy when I took out a loan.  The death benefit was reduced by the exact amount of my loan, and it is the death benefit that the insurance company is ultimately obligated to pay upon death.

The paid-up additions rider

Another important component of the concept is that it requires a paid-up additional insurance rider on the whole life policy.  In short, this allows the policyholder to accelerate the increase in the policy's cash value. Paid-up additions also earn dividends, so both the value of the base policy and paid-up additions continue to compound over time.

Infinite Banking is not...

Infinite Banking itself is not a whole life insurance policy, rather it is concept that uses a whole life insurance policy to achieve its' objectives.  In my experience, it is also not a scam.  It is not a get rich quick scheme, rather it does require patience and discipline to attain the full value from it.

What are some pros of Infinite Banking?

Infinite Banking is really about having control over your money and finances.  You can access cash without having to go through a loan approval process.  Here is a list of some of the other benefits of Infinite Banking:

A safe investment

Whole life insurance policies literally guarantee that the cash value and death benefit will rise over time making it a very safe investment.  I did receive the projected dividend payment every year that I owned the policy even though that was not a guarantee.  I owned the policy for 5 years.  It is a great feeling knowing you won't lose the money you are paying in.

Highly liquid

Infinity Banking and whole life insurance policies are highly liquid and easily accessible.  You don't need to fill out an application like you do for a loan.  You don't need a high credit score to get to the money.  I recently heard about some case studies where people or businesses are using Infinite Banking to acquire real estate.  This is a rather brilliant and creative way to fully utilize Infinite Banking in my opinion.  I may have kept my whole life policy had I utilized the Infinite Banking concept during my real estate investing days.  I have invested in real estate directly and managed properties myself in the past, but likely won't be investing in real estate that way again.  See my blog about passive real estate investing for more information. (https://financecoachonline.com/what-is-crowdfunding-real-estate)

Provides a death benefit

Unlike any other investment vehicle Infinite Banking does provide a death benefit.  By default a whole life insurance policy is the tool that drives the concept, so a death benefit is a given.  For anyone who needs life insurance, and is considering the Infinite Banking concept, this is a tremendous benefit.

Not tied to the stock market

The stock market can be a great investment avenue, but everyone should diversify.  Being in a safe, liquid investment such as Infinite Banking is a great way to diversify.  As previously mentioned, it is guaranteed to go up in value over time.  Infinite Banking is not tied to stock market supply and demand fluctuations and that can be a great benefit for portfolio diversification.

Tax benefits

The tax benefits of Infinite Banking is an aspect that really attracted me to the idea.  The value of the policy will always grow tax free.  Infinite Banking whole life policies will not be taxed.  Unlike a 401K or traditional IRA that grow tax deferred, the policies grow tax free.  Whether you cash out the policy, or take out loans against the policy value, you will never be taxed on the original investment or growth from the investment.

Pays dividends

Dividends are almost always paid with Infinite Banking.  Like I said, in the 5 years of owning my policy, I received the roughly 5% dividend payment every year even though they are not guaranteed. It is refreshing to see the annual bump in value due to the dividend payments.

Appreciates in value

Whole life policies and thus Infinite Banking are guaranteed to appreciate in value.  This ties very closely to the safety aspect of this investment vehicle.  There aren't a lot of investments that are guaranteed to appreciate in value other than bank accounts backed by the FDIC and bonds secured by the Treasury department.

Paid-up policy

A paid-up policy is occurs when all the premium payments are complete and the insured is free of all payment obligations.  This is a benefit of a whole life policy and not a term life policy or any other life insurance policy.   The policy stays intact until insured's death or termination of the policy. The age of the policyholder usually drives the paid-up status. The policy could be considered paid in full at age 65 and you no longer have to make premium payments.  This is a great benefit to those who are willing to have the patience to allow the policy to be paid-up.

What are some cons of Infinite Banking?

Very costly

I found the premiums to be very costly with Infinite Banking.  The premiums can make Infinite Banking cost prohibitive for many people.  You will need to have $500 or more available for premium payments.  This is a subjective amount because there are a ton of variables including how much of a death benefit do you want or need for your loved ones.  If you want to have a large death benefit you clearly will need to invest thousands of dollars per month into the premium.  Larger payments will also accelerate the cash value to start taking out loans, which is the whole premise of Infinite Banking.

Need to qualify for the policy

Lastly, you have to qualify for the insurance.  If you have an abundance of health issues or have a risk taking lifestyle, you may not qualify at all.  If you go skydiving on a regular basis or are a high risk candidate for heart failure based on lifestyle choices this may not be for you.

Negative value & break even

Initially there is little to no cash value because they are offering you a death benefit.  Let's face it, the insurance sales people pushing these products need to be paid and this payment comes from you.  It will usually take 3-5 years to break even on the premium payments to the cash value.  This shortfall will also prohibit you from taking out loans until you have a certain amount available in the cash value of the policy.  The paid-up additions rider will help accelerate this process, so it is critical to have this rider in place.  Without it, it could take up to 10 years to break even.

Liquidity comes at a price

If you decide to cash in your whole life early and take the cash value, you will no longer receive the death benefit.  The fees to cash out can be high and the cash value is often less than the death benefit.  There may be a point where you decide for whatever reason you no longer need or want the death benefit.  Divorce from your spouse for example.

What was my personal experience with Infinite Banking?

This is an Infinite Banking review after all, so let me share my experience and recommendations.  For me Infinite Banking just didn't work.  I found myself becoming overwhelmed by the premium payments and it only became worse as I took out loans.  I had to watch my cash value diminish from the loan and that didn't sit well with me.  To clarify, there isn't an obligation to pay back the loans.  I also do not put a lot of value on having life insurance.  For me,  I believe I can take that money and invest it elsewhere.  I am healthy and have a decent investment portfolio along with social security benefits my wife can use upon my death.  The option of cashing it out eventually became more attractive.

Some people advocate one way or the other when it comes to Infinite Banking.   Personally, I can see the value based on the pros above, but the costly aspect was too much for me.

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