Infinite Banking
Infinite banking is a financial strategy that allows individuals and families to build wealth, create liquidity, and leave a lasting legacy by leveraging a properly structured whole life insurance policy.
When combined with a specialized trust, this approach maximizes financial benefits and ensures tax efficiency.
Whole Life Insurance Policy Breakdown for Infinite Banking
Type of Policy
1
Whole Life Insurance
Only consider dividend-paying whole life insurance policies issued by mutual companies.
Pro Tip: Universal or indexed universal life policies often have fluctuating returns and fees, which undermine the infinite banking concept.
2
Premium Structure:
Allocate premiums as follows:
60-70% Base Policy: Ensures stability and guarantees.
30-40% Paid-Up Additions Rider: Maximizes cash value.
Pro Tip: Work with the broker to design a "front-loaded" policy, where cash value is accessible in the first year, not just after several years.
3
Death Benefit
Opt for the lowest death benefit allowed to remain MEC-compliant (Modified Endowment Contract).
Pro Tip: Policies that violate MEC rules lose their tax advantages. Ensure your broker provides a clear MEC test illustration.
4
Guaranteed Growth
Look for policies with guaranteed growth of at least 3-4%, even without dividends.
Pro Tip: Review historical dividend rates of mutual companies. Choose one with a 10+ year record of consistent payouts.
5
Tax Benefits
The policy should allow:
Tax-free growth of cash value.
Tax-free loans if structured properly.
Tax-free death benefit for beneficiaries.
Pro Tip: Ensure the policy remains compliant with IRS rules by keeping premiums below MEC limits.
6
Loan Terms
Your policy should allow:
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Borrow against your cash value, not withdraw.
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Loans at 4–6% interest from most mutual companies.
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Borrowed funds are not taxed.
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Cash value continues to grow while loan is active.
Pro Tip: Use loans for income-producing investments like real estate or business opportunities, so your returns cover the loan while your capital compounds.
Additional Pro Tips for Infinite Banking Success
Understand the Long-Term Commitment
01
Infinite banking works best when funding is consistent over decades.
Pro Tip: Commit to funding the policy for at least 10-15 years to see significant compounding benefits.
02
Evaluate Your Financial Goals
Ask yourself:
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Are you using the policy for retirement income?
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Will it be used to finance large purchases or investments?
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Do you need a backup emergency fund?
Pro Tip: Tailor the policy structure to your goals. For example, prioritize higher cash value early if you need liquidity within 1-3 years.
03
Be Cautious About Overfunding
Avoid overfunding your policy beyond the MEC limit, as this triggers taxable events.
Pro Tip: Work with a broker who tracks MEC limits annually and adjusts your policy accordingly.
04
Monitor Policy Performance Annually
Schedule annual reviews with your broker to ensure:
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The policy is performing as expected.
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Dividends and cash value growth are on track.
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Any necessary adjustments are made.
Pro Tip: Ask your broker to show actual performance vs. projections every year.
05
Have a Backup Funding Plan
Ensure you can meet the premium obligations even during financial downturns.
Pro Tip: Use cash flow from investments financed through the policy to fund premiums.
06
Leverage Multiple Policies Over Time
As your cash flow grows, consider purchasing additional policies to expand your "banking system."
Pro Tip: Start with one policy and scale up after 3-5 years of proven success.
Final Checklist
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Choose a licensed broker with certifications in infinite banking.
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Work with mutual companies offering dividend-paying whole life policies.
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Ensure the policy includes paid-up additions, non-direct recognition loans, and a waiver of premium rider.
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Review illustrations for cash value growth and loan scenarios.
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Avoid brokers who push universal or indexed universal life insurance.
By following these specific steps and applying the pro tips, you can confidently identify the right insurance broker and secure the best policy to maximize your infinite banking strategy.
