Hey there,

I’ve recently come across this concept and after doing light research I cant seem to find anything wrong with this personal finance system thus far. I got a quote to see what the cash value is year 1 and it looks good too (guaranteed $6500 & $13.3k end of year 1 and 2 respectively). Even though I understand that I would need to put $500 minimum per month to make it work, but if I break even on payments vs cash value in like early YR 3, would it not be worth it? Couple of details: guaranteed growth rate 4% insurance company has been paying out dividends at 6% and policy loan interest rate is at 5%. Payments around $600/mo which I can build around that. What do you think? Am I crazy or would this be a good idea?

Well, I'd check my forward-looking assumptions

That's how NPV works a dollar today worth a lot more than a dollar 10 years from now.  In addition, you know you're a little ahead today for sure, but things change.

@Darrell Bazemore 

Don't do it.

The big pitch with Infinite Banking is the idea of "banking on yourself" i.e. having liquidity both now and in the future with an investment account that is tax-free. I've gotten the pitch before and the tax-free component of taking loans on your own life insurance policy cash value without those loans showing up on our tax return is a BIG part of the Infinite Banking pitch.

A Roth IRA and a Roth 401(k) solves this as you can contribute $25,500 per year between both Roth accounts. If you are married, double that to $51,000 per year into a tax-deferred AND tax-free account. Yes, there are 5-year withdrawal rules to follow but your principal contributions to a Roth are accessible. The tax-free and the liquidity "problem" are solved through Roth accounts. If your income exceeds the Roth IRA income threshold limits, and you already have Traditional IRA accounts, I recommend transferring the IRAs into your current 401(k) Plan(s), assuming incoming rollovers are allowed. A $0 IRA balance will allow you to begin performing two-step Roth IRA contributions, also known as back-door Roth contributions.

I should also mention that for 99.5% of the population who are married couples, saving and investing $51,000 PER YEAR should be just fine for retirement savings. If you are age 50 or older, you can contribute another $15,000 per year in catch-up contributions. So $66,000 per year into Roth accounts.....and I haven't even touched on the mega-back door Roth option.

So in terms of liquidity, control, and large funding opportunity, the Roth options are more than enough for nearly everyone saving for retirement.

Good luck and let me know if I can be of assistance. 

@Bill Hampton great explanation and alternate thought.

Don't get caught up with rates of return when implementing IBC. The IBC is a thought process that uses properly structured whole life insurance as a place to warehouse wealth that gives you control, liquidity, and guarantees. It is NOT an investment. You can still invest in stocks, real estate, or whatever you want, but running it through your policy first adds velocity to your money and allows you to recapture lost opportunity cost. Do some more research and you will find your answers. I did 7 months of research before starting my first policy. 

WL and IUL are giving a low, but tax free return that is lower than the stock market, but higher than other safe investments. You don't have any volatility issue with down years. It is also, in most state, asset protected against judgments.

But where these contracts have a big difference with ROTH IRA, 401k and other retirement plans are:
- we don't know if congress won't start taxing ROTH in future years to catch up on some of the country debts.
- you can get a low interest loan secured by your cash value in your life insurance to invest in other placements. The loan can't get refused because of your credit, debt ratio, etc..., and you have multiple options to choose from (outside lender with interest only payment, life insurance with your own repayment schedule). During that time your full cash value is still continuing to grow in the life insurance policy (often faster than the loan interest) while your loan is also getting a return that would be way more than the interest that you are paying on it. If you are using the loan into a business, you can also expense the interest.
- during retirement, by using loans against the policy, you don't have minimum required distribution (contrary to the ROTH 401k), you can get way more than the usual 4% distribution rate advised for IRA and 401k without risking to outlive your wealth, as the cash value continue to grow sometime even faster than you take a loan out.
- as a bonus, you get a life insurance policy for your family if you were to pass away in your younger years. Later in life, the death benefit would be closer to your cash value and won't really add any benefit vs the accumulated cash value.

The cons are the higher cost of a life insurance policy in the early years as you are paying upfront all the fee and commission. However, on the long run, after year 10 usually, the running cost of the policy is around 0.25% of the cash value. Equivalent to a low cost ETF in a standard IRA account, but probably way lower than any self directed IRA, employer 401k or advisor account.

Nope. Was an ok idea when interest rates were above 12% and it was invented. Was a bad idea once interest rates got below 6% and a horrible deal now. Just click on the magnifying glass in upper right and learn why. 

Originally posted by @Bill Hampton :

@Darrell Bazemore 

Don't do it.

The big pitch with Infinite Banking is the idea of "banking on yourself" i.e. having liquidity both now and in the future with an investment account that is tax-free. I've gotten the pitch before and the tax-free component of taking loans on your own life insurance policy cash value without those loans showing up on our tax return is a BIG part of the Infinite Banking pitch.

A Roth IRA and a Roth 401(k) solves this as you can contribute $25,500 per year between both Roth accounts. If you are married, double that to $51,000 per year into a tax-deferred AND tax-free account. Yes, there are 5-year withdrawal rules to follow but your principal contributions to a Roth are accessible. The tax-free and the liquidity "problem" are solved through Roth accounts. If your income exceeds the Roth IRA income threshold limits, and you already have Traditional IRA accounts, I recommend transferring the IRAs into your current 401(k) Plan(s), assuming incoming rollovers are allowed. A $0 IRA balance will allow you to begin performing two-step Roth IRA contributions, also known as back-door Roth contributions.

I should also mention that for 99.5% of the population who are married couples, saving and investing $51,000 PER YEAR should be just fine for retirement savings. If you are age 50 or older, you can contribute another $15,000 per year in catch-up contributions. So $66,000 per year into Roth accounts.....and I haven't even touched on the mega-back door Roth option.

So in terms of liquidity, control, and large funding opportunity, the Roth options are more than enough for nearly everyone saving for retirement.

Good luck and let me know if I can be of assistance. 

One of the best arguments I've seen against infinity banking for the average person. Great post.  

@Bill Hampton Few employer sponsored 401k plans offer after-tax contributions above the pre-tax amount or in-service distributions. I thought those were required to execute the mega back door Roth that you are describing.  Am I missing something?

@Darrell Bazemore

If you don't mind doing a little reading, this subject was beat to death in this thread: https://www.biggerpockets.com/forums/519/topics/245380-paradigm-life-infinite-banking-whole-life-insurance?page=3 and several others here on BP.

As you've no doubt seen, there are wide ranging opinions, but very few people who actually understand how permanent life insurance works. A properly designed, and maximum over-funded policy is not the same as the typical whole life that most of these people think they understand.

I don't agree with anything said here. 

IBC is higher net worth investors with net worth at least 500k because they have extra liquidity where lower networth should be using every dollar to invest (and not pay heavy insurance fees).

Originally posted by @Lane Kawaoka :

I don't agree with anything said here. 

IBC is higher net worth investors with net worth at least 500k because they have extra liquidity where lower networth should be using every dollar to invest (and not pay heavy insurance fees).

Lane, thats an interesting statement as I've never heard anyone make that argument, however, I don't agree nor disagree. You make a valuable point about extra liquidity, which IBC requires, to get the policy(ies) rolling. The arguments about using your 401k or other qualified plans, I totally disagree with on some level. All I can speak to is my experience with IBC.

I'm only 3 years in, so I don't have a wealth of knowledge... yet. What I like about IBC is control. I believe that tax rates must go up in my lifetime, and I never plan on making LESS money as I age, meaning my tax bracket should continue to go up. Just because I don't pay takes on qualified plan gains this year, doesn't mean I won't. I think there is a real chance that tax rates will be much higher by the time I reach retirement than they are today. Don't even get me started on the uncertainty and lack of control of investing in the stock market. I use my IBC policies as my savings account, that just happens to earn 3-5% interest, plus dividends (when structured correctly with a mutual company). I've been able to buy property, and make several short term loans using the policies I currently have set up, while my cash value of the policy continues to grow, uninterrupted. Could I have done that with a 401k, or a regular savings account, yes, but I would have given up opportunity cost of my net cash value growing WHILE earning interest elsewhere. I have policies on my two children that will pay for their first car, college, weddings, and hopefully first house or a good portion of it. I'm not against leveraging from banks, in fact, in our interest rate market, I think it's smart to use lower interest from banks, while it's available, and earn higher interest returns on my IBC money.

Understanding YOUR current financial picture and FUTURE financial picture is important while building one of these policies. Also, working with someone who practices this concept and fully understands the structure and the process has been super helpful.

I encourage anyone interested to real Nelson Nash's book, Becoming Your Own Banker (multiple times) and find resources that can help educate and coach you through the process. I'll be happy to put anyone in contact with my coaches here in Birmingham. They mentored directly under Nelson and I actually was able to have lunch with Nelson before he passed at their office. 

There is a great podcast that these guys put out called "Wealth Without Wallstreet" that dives into IBC as well as the many ways to build passive income using your policies. 

I'm not an expert yet, but I do believe it will be a powerful tool in my wealth creation and pursuit of financial freedom!

@Jamie O'Brien well said. A concept that is misunderstood by many planners and the public. A very very specific policy must be designed for YOU based on a variety of factors. For any client that wants to learn more, I would recommend 90 days of deep studying into the concept before even talking to a provider.

See Tom Rutkowski our of Florida. One of the worlds top experts on infinite banking.

I’ve done a regular whole life policy & it’s now aged & primed to borrow low rate policy loans against it.

I’m not doing more personally as I got attacked with a $500k+ debt bomb a couple years ago that was not in my control right as we are facing a violent economic storm & dollar currency collapse.

I recommend people move assets they don’t want to lose & grow into silver & crypto!

Doing it today would be as dumb as buying an annuity today. You’re locking in low returns. I personally don’t believe Schiff or kyosaki’s predictions of massive inflation coming, but if it does you’ll get crushed when interest rates sky rocket. I guess fi you’re too scared to buy any real estate, and you’ve maxed out your work and Roth contributions, it’s better than a savings account. 

worth a read:  https://www.whitecoatinvestor....

@Michael Zagorsky old article but it really is factually incorrect. As a tax person, the author is flat out wrong on a few points from an IRC perspective. Also, the author (not sure who he is) calling IBanking an investment is wrong as well or he missed the point. Summary is good tho but that article has floated around the web for years and has flaws.

In general, every time I look into Infinite banking, the more I think it's a bad item:

First, there are plenty of tax advantage strategies to save/invest money:

1. Mega-Backdoor 401k's

2. Opportunity Zone investing

3. 1031 exchanges

4.  Self directed solo-401k's

5. Self-Employed LLC taxed as a S Corp.

All of these can be explained in a couple of minutes and understood by most people.  That said, every time I read about 'infinite banking' the more confusing the subject becomes.  The answer seems to always funnel to a commission salesperson who can answer my questions.  Why is that?  Why it is that I can understand the tax advantages of moving a business to Puerto Rico but somehow I can't come to a complete understanding of 'infinite banking' and why it's a good idea?  

Of course 'infinite banking' violates my primary rule of buying anything:

Never buy any financial product advertised on AM talk radio.

What's funny is that that while those people talking about how wonderful it is, why is it that they are having to sell it?  If it really generated risk free returns, big money hedge fund investors would actually pay people to take out the policies in exchange for a cut of the action.  That does not happen.  No secondary market for channeling capital into these products.  There are markets for lending people money to buy discounted employee stock purchase plans, frequent flier miles, credit card authorized users, etc.  But somehow a product that is 'risk free' and much higher than bonds seem to have no one trying to round up people to take out policies for their money.  

@Michael Zagorsky what I found helpful was doing independent, unbiased research, outside of insurance salesmen, because yes, they may see this as ideal for you or anyone else.  Talk to other who are 10-15 years into it.  I would never look at this as in investment strategy, because its not.  

I guess I already understood certain parts of the IRC that it interplays with and the benefits, but they aren't primary. However, those 5 things you listed are apples and oranges to IBanking, especially #5. Not to digress, but some of the worst advice I hear is when someone is told just to tax their LLC as an S Corp. Makes me cringe if they don't have an entry and exit plan, not understand the complexities they've now created. Lazy CPA advice. The number of people that have shown up with real estate in an S corp is mind boggling. Also, in the other examples, if they market crashes, isn't your money at risk? Some would prefer a % of funds in a mutual company that guarantees a return with no "dips" because of factors outside of their control.

I don't think anyone goes into Ibanking primarily for tax advantages.  The Rockefeller's or Mcdonald's did not do it purely for tax advantages, although its a bonus. They did it as a way to remove their cash from the primary banking channels and into a strategy where they can deploy capital on their own terms.

As others have said, I really don't think this is for everyone.  My personal opinion is that it should be reserved for business owners with excess cash flow with a high degree of certainty they'll have that cash flow for years to come.  Insurance people may not agree with that, but that's who I think benefits the most.

I own multiple Infinite Banking policies and use them for RE investing. It works. You can get tax free growth at 4% or higher and the availability to borrow against the policy at 90% or greater of the value. You can learn more about coordinating RE with Infinite Banking here,