The term “infinite banking” may sound like a novel financial approach, but it’s not a new concept. With this strategy, permanent life insurance policyholders become their own bankers by taking out loans against a policy’s cash value.
Infinite banking is promoted as a way to sidestep traditional banks and lenders and create wealth. But it’s more complicated than it may seem at first glance.
🤓Nerdy Tip
While cash value life insurance has perks, it also has limitations. Because using a whole life policy as a vehicle for infinite banking can be risky, it’s not a strategy we recommend for most people.What is infinite banking?
Infinite banking involves using a permanent policy, usually whole life insurance, as a personal line of credit. Whole life policies earn cash value at a guaranteed rate over time. Once you’ve accumulated enough, you can begin to borrow against your life insurance policy.
The infinite banking concept encourages people to contribute extra money to the policy’s cash value to boost growth. Policyholders can then take out loans against the value rather than relying on a lender or dipping into savings for large purchases. It’s touted as a way to lower the amount of interest you pay to financial institutions through traditional loans.
The concept was introduced by an insurance agent, Nelson Nash, in the 1980s. Nash further explained the theory in his 2000 book, "Becoming Your Own Banker: Unlock the Infinite Banking Concept."
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How does infinite banking work?
Infinite banking is a strategy, not a type of life insurance. It’s often used with whole life policies, which have cash value components and usually last your entire life.
💸 Infinite banking involves taking out insurance policy loans
The cash value in whole life policies grows at a guaranteed rate of return set by the insurer. Participating whole life policies may also pay a dividend which can be used to grow cash value more quickly. When the policy has earned enough cash value, policyholders contact their life insurance company for a cash value loan.
🏦 You can skip the bank and borrow from yourself instead
Like most other loans, cash value loans are subject to interest. But they’re unique in that policyholders don’t have to qualify for a loan in the same way they do for traditional loans. Under infinite banking, the life insurance policy is collateral for the loan.
However, you could lose your coverage if you borrow too much and there’s not enough money to cover the cost of your insurance. Although you are borrowing your own money, you’ll still have to pay loan interest on the amount borrowed.
⚠️ Loans don’t have to be paid back, but it’s risky
Policyholders don’t have to pay back the money from cash value loans. Keep in mind that not repaying the loan can have consequences. For instance, it might reduce the amount of money the life insurance beneficiaries get when the policyholder dies or even cause your policy to lapse.
Pros and cons of infinite banking
Infinite banking isn't a great fit for everyone. Before you buy into the concept, consider these advantages and disadvantages to using life insurance as a way to take out loans without using a bank.
Pros of infinite banking
Buying life insurance as an investment and a vehicle for infinite banking has some advantages in specific situations.
Permanent life insurance has tax benefits.
The cash value within a permanent life insurance policy generally grows tax-free, and loans against that cash value aren’t taxed. Life insurance payouts typically aren’t taxable, either.
Whole life insurance offers guaranteed returns.
Unlike with some other permanent policies, the cash value growth of whole life policies isn’t tied to the market. Instead, the returns are fixed at a rate set by the insurer. If your policy is with a mutual life insurer, you might also earn annual dividends based on the company’s financial performance.
Cash value policies can make it easier to get a loan.
Personal loans from traditional lenders often involve applications, credit checks and repayment deadlines. In comparison, once whole life policies have built up enough cash value, policyholders are entitled to borrow against it. You can do this without offering an explanation or meeting credit score requirements because you're borrowing your own money. This can improve cash flow and allow you to secure funds for unexpected expenses, like medical bills.
There’s flexibility with repayments.
You don’t need to pay back a cash value loan by a specific date — or at all (if you’re not concerned about maintaining your life insurance coverage). This might be appealing if you want to repay a loan at your own pace. Keep in mind that you will be paying interest on the loan, and this could trigger tax implications.
Cons of infinite banking
Banking on yourself can be a pricey and complex way to manage your wealth. Factor in these downsides before diving in.
Whole life insurance is expensive.
The cost of whole life insurance is high because of the cash value component as well as the fact it typically offers lifelong coverage. If you commit to infinite banking, you would need to pay high premiums for the long term.
A healthy, nonsmoking 40-year-old man can expect to pay $3,200 per year for a $500,000 whole life policy, according to LifeStein.com, an online life insurance brokerage. A healthy, nonsmoking woman of the same age might pay slightly less: $2,849.
Whole life insurance rates for nonsmokers
These annual life insurance rates are based on a $500,000 policy for preferred applicants in good health.
Average annual rates for men | Average annual rates for women | |
|---|---|---|
20 | $1,555 | $1,367 |
30 | $2,237 | $1,940 |
40 | $3,200 | $2,849 |
50 | $4,983 | $4,317 |
60 | $8,335 | $7,304 |
70 | $15,273 | $13,812 |
Source: LifeStein.com. Lowest three rates for each age averaged. Data valid as of June 1, 2026, and rates are subject to change. | ||
To compare, a 40-year-old man in excellent health would pay an average of $321 per year for a 20-year, $500,000 term life insurance policy. A woman could pay $278 — significantly less than the cost of whole life insurance.
Term life insurance is sufficient for most people. It provides coverage for a set period of time, like 10, 15 or 20 years, and pays out if you die before your policy expires.
» MORE: Average life insurance rates
Cash value takes a long time to build.
Because cash value takes a long time to grow, it typically takes 10 years or more to build up the amount you need to take out a loan. Unless you have a lot of discretionary funds to pour into your policy’s cash value, infinite banking isn’t a quick way to create wealth. The primary purpose of whole life insurance is to leave a death benefit to your beneficiaries, not build an investment.
Overfunding a policy can be costly.
You’ll need to contribute a hefty sum of money to your policy’s cash value for infinite banking to work. You do this by overfunding your policy — paying more than your required premiums. It’s common to allocate around 10% of your income to the policy every month, which may not be within your budget.
Infinite banking is complicated.
Using life insurance as an investment and source of liquidity is nuanced. If you want to ensure you maintain your life insurance coverage, you’ll need to carefully watch fluctuations in your policy’s cash value. It’s important to speak to a fee-based life insurance advisor to learn whether infinite banking suits your goals, needs and budget.
Alternatives to infinite banking
“Banking on yourself” isn’t the best path for everyone. If you need life insurance, consider these strategies instead.
Buy term life insurance
Term policies cover the years when you might have the most financial commitments and a greater need for life insurance. This includes obligations like a mortgage, student loans or young children. Compare life insurance quotes to lock in the lowest possible price.
Max out tax-advantaged accounts first
If you buy term life insurance instead of whole life, you can invest the difference you’d be paying in premiums to your 401(k) or Roth IRA. These accounts help fund your retirement and are generally a better investment strategy than life insurance.
Funnel money into an emergency fund
An emergency fund should be a priority over following an infinite banking strategy. Aim to open a high-yield savings account, and build the account to the point where it covers three months of living expenses.
Frequently Asked Questions
How much money do you need for infinite banking?
For infinite banking, the general recommendation is to put 10% of your income into the cash value of the whole life insurance policy. It’s likely you’ll have to wait up to a year or longer before you’ll have enough cash value to borrow against.
Is infinite banking legal?
Yes. There’s nothing illegal about policyholders using life insurance policy loans instead of borrowing money from a bank. However, overfunding a life insurance policy can be risky and carry tax implications, so it’s best to consult with a financial professional before you pursue this strategy.
What's the problem with infinite banking?
Because infinite banking requires borrowing from the cash value of permanent life insurance, there are some risks involved. Not repaying the loan could result in a reduced death benefit, potential policy lapse and other tax implications. It’s best to consult with an independent life insurance agent and a tax professional to determine if infinite banking is a good fit for your financial situation.
