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What is Infinite Banking?

The infinite banking system is a financial strategy utilizing a whole life insurance policy as a personal bank. Proponents of infinite banking believe it provides increased control of your money, tax advantages, and an ability to build wealth.

How Does Infinite Banking Work?

Infinite banking involves purchasing a whole life insurance policy and using it as a personal bank. A whole life insurance policy is a “permanent life plan that provides coverage throughout your entire life”, according to Aflac. The cash value is higher than a typical plan, with higher premiums that go into a tax-deferred account.

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Infinite banking occurs when you purchase one of these policies and start taking out loans against the policy’s cash value. After taking out loans against your own policy’s cash value, you begin making payments back over time that include interest.

The policy’s cash value continues growing over time thanks to a combination of the premiums you are paying, investment returns, and the growth rate guaranteed by the policy provider.

The idea behind the infinite banking system is borrowing from yourself and earning a return on your own money. For many, this is much better than borrowing from and paying interest to a traditional bank. Traditional bank loans come with unsavory requirements and hoops to jump through, which are a headache for most people.

The goal of infinite banking is creating a self-sustaining system where you can circumvent the traditional banks entirely. Borrowing funds from yourself and paying yourself back as the policy value keeps growing.

Benefits of the Infinite Banking System

There are many potential benefits to using the infinite banking system, but here are a few.

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  1. Increasing the control you have over your money: with the infinite banking system, you are controlling how your money is being used and what you are investing it in. You can use the cash value when paying for any number of things. From your child’s college education, starting a new business, to even covering unforeseen expenses. All of this can be done without relying on traditional banks or high-interest personal loans.
  2. Potential tax advantages: who life insurance policies with tax-advantaged status are growing in cash value while deferred taxes. This gain in value is accessible using tax-free policy loans. This is important when considering the taxes sometimes placed on other investments when money is pulled out or they are sold.
  3. Building wealth over time: the infinite banking system is optimal for creating a self-sustaining system. You can continue borrowing from your policy’s cash value and then paying back the money you borrowed with interest. As you do, you are increasing the policy’s cash value as you go. This can be a powerful way to build wealth over time and achieve financial security.
  4. Leaving behind a legacy: in addition to financial benefits of infinite banking, whole life insurance policies also provide a way to leave a financial legacy for your loved ones. For many, this is more than enough reason to consider exploring whole life policies. The death benefit of a whole life policy is meant for paying funeral expenses, closing out debts, or funding future financial goals of beneficiaries.

Is the Infinite Banking System Right for You?

As with any financial strategy, the infinite banking system may not be right for every individual or family. Depending on your financial goals, you should consider speaking with an insurance professional about the implications of a whole life policy and how they align.

Some things to consider when considering if it’s a fit include your risk tolerance, financial goals and timelines for achieving them, and your ability to commit to the long-term premiums required for one of these policies (they’re a lifelong commitment).

Doing your due diligence and researching the insurance company you are considering using needs to be on your checklist before diving in. It is our suggestion that you also consult with a financial advisor before signing any binding documents.

Overall, the infinite banking system can be an incredible tool to better control your finances and build wealth over your lifetime when utilized correctly.

Want to learn about some other methods to start stretching your dollar farther? Check out our latest article on accelerated depreciation and all of the tax benefits that come along with it.

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Matt Moreland
Matt Morelandhttps://www.mattmorelandrealtor.com/
Matt is a real estate agent, investor, and entrepreneur in Texas, where he lives with his wife and three children. When he is not working on The Agent's Archive, he is helping his clients acquire investment properties, guiding new agents as they enter the industry, farming wine grapes, or working on something for his winery. In his free time he enjoys homesteading with his family, hunting, swimming, and backpacking.
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