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The Infinite Banking Concept (IBC) sounds almost too good to be true–a financial strategy that allows you to become your own banker, borrow money from yourself, and somehow continue earning interest on the money you’ve borrowed.
While some critics dismiss it as too good to be true, others praise it as a powerful wealth-building tool. As with most things in life, the truth about Infinite Banking lies somewhere in the middle. It’s not a scam, but it’s also not a miracle solution for everyone. Its success depends on proper implementation, a well-structured whole life insurance policy, and a clear understanding of how to leverage it effectively.
In simple terms, the Infinite Banking Concept (IBC) – aka Becoming Your Own Banker–is a method of using a specially-designed whole life insurance policy as your own personal bank. Instead of relying on traditional banks for loans and financing, you borrow against the cash value of your life insurance policy.
The concept was originated by Nelson Nash in his book “Becoming Your Own Banker” in the 1980s, but the underlying principles have been used by investors and entrepreneurs for over a century.
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The end result is that you have access to a source of financing that you control, while your money continues working for you in two places at once – in your insurance policy and in whatever you used the loan for.
To make the concept more concrete, let’s look at a couple real-world examples of Infinite Banking being put to use:
In the 1880s, the owner of Fink’s Cigar Company used a loan from his whole life policy to finance the expansion of his business when banks weren’t willing to lend. This strategic move not only facilitated immediate expansion but also underscored the practical benefits of leveraging life insurance for business financing. The business thrived and is still family-owned and operated today.
No. Infinite Banking is completely legal as long as you’re working with a legitimate insurance company and a properly structured whole life insurance policy. There’s nothing shady about borrowing against your own policy’s cash value. It’s a standard feature that’s been around for over a century.
The keyword here is “properly structured.” Not every whole life policy works well for IBC. You need a policy designed with the right riders to build cash value quickly.
Yes, but with a big asterisk: it only works if you commit to it long-term and use it correctly.
The cash value in your policy grows tax-free, which is a serious advantage. But here’s what trips people up, it takes time. You can borrow almost immediately but it will probably take 4-5 years before your guaranteed cash value starts increasing by more than your premium payment every year.
If you bail out early or don’t fund it properly from the start, you won’t get the benefits you want. That’s where some people get frustrated and they write it off as a scam.
In reality, good things take time to grow.
This is where most agents get it wrong, and it’s not always because they’re trying to rip you off – they just don’t know how to design these policies correctly.
A traditional whole life policy allocates your entire premium into the base policy, which builds death benefit slowly and cash value even slower. That’s fine if you’re 70 and just want life insurance. It’s terrible if you’re trying to build available cash value.
An infinite banking policy is different. Most of your premium goes into something called Paid-Up Additions (PUA) instead of the base policy. Think of it like this: the base policy is the chassis of a car, and PUAs are the engine. You need both, but one does the work of generating power.
The typical splits look like this:
The higher the PUA percentage, the faster you build cash value in the early years. But there’s a tradeoff, you might see slightly lower returns over 30+ years with a 90/10 split compared to a 70/30. It depends on whether you need access to cash sooner or you’re playing the long game.
Here’s where it gets technical for a minute: the IRS has rules about how quickly you can fund a life insurance policy before they start taxing it like an investment account instead of insurance. It’s called the 7-pay test, and you don’t want to fail it. If you do, your policy becomes a Modified Endowment Contract (MEC), and you lose the tax advantages.
To avoid this, many IBC policies add a cheap term insurance rider for the first 5-10 years. This temporarily pumps up the death benefit, which lets you contribute more to PUAs without triggering the MEC rules. Once the term rider expires, your permanent death benefit is still solid because you’ve been buying PUAs all along. It can be a good strategy, but it can also be more expensive for the policy owner. In our office we do calculations based of the clients goals about how they want to use their cash value so we know if it’s in their best interest to have a term rider on their policy or not. (spoiler alert: for most people we find it is not a good use of premium dollars)
Let’s talk about something most agents won’t tell you: they make significantly less money on properly structured IBC policies.
Agents earn commissions almost entirely from the base premium. When you design a policy with only 10-20% going to base and 80-90% to PUAs, the agent’s commission gets cut by 70-80% compared to a traditional whole life policy.
This is why finding a good IBC agent is hard. Most agents either don’t know how to structure these policies, or they do know but would rather sell you something that pays them better. It’s not necessarily malicious – it’s just how the system works.
If an agent pushes back on a 60/40 split and suggests something closer to 50/50, ask them why. If they can’t give you a reason that benefits you (not them), find someone else.
Some people swear by Non-direct recognition policies. Here’s what that means:
Non-direct recognition: When you take a policy loan, the insurance company pays dividends like you never borrowed anything.
Direct recognition: The company adjusts the dividend rate on the amount you borrowed. Sometimes it’s higher than the standard rate, sometimes lower, it depends on the company.
In theory, non-direct recognition sounds better. In practice, it often doesn’t make a huge difference.
What actually matters more:
A direct recognition company with a 6.5% dividend rate might outperform a non-direct recognition company paying 5.5%. Don’t get so hung up on the type of recognition that you miss the big picture.
Every year, your mutual insurance company will pay dividends on your policy (assuming they had a profitable year, which the good ones usually do).
You have a few options for what to do with that dividend:
Most of the time you will want to choose option three.
When you use dividends to buy more PUAs, you’re increasing both your cash value and death benefit with no additional commissions or policy fees. It’s the most efficient way to grow your policy, and it adds to your compound growth year after year.
A lot of the hype around Infinite Banking stems from misunderstandings or misrepresentations of how the concept actually works. Let’s break down some common issues:
While IBC isn’t a scam, per se, it is often marketed in an overly rosy or one-size-fits-all manner. To decide if it’s right for you, you really need to examine the pros and cons for your specific situation.
In today’s business world, transparency can be a rare commodity. Too often, critical details are withheld, leaving individuals without the full picture—an issue that, unfortunately, extends to some insurance agents as well.
However, this doesn’t mean that all agents operate with bad intentions. Financial literacy and due diligence are essential, but it’s equally important to recognize that many professionals are dedicated to providing honest, valuable guidance.
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Policy Checklist Make Sure You Get a Good Policy Is your policy good or bad? Use this checklist to help evaluate your existing life insurance or a new policy you are considering. |
At McFie Insurance, our mission is to empower individuals with knowledge. We believe in full transparency, sharing insights from both our successes and past lessons. By equipping you with the right information, we aim to help you make informed financial decisions with confidence.
When people ask, “Is Infinite Banking a scam?” they’re often only looking at one side of the equation. Like any financial strategy, Infinite Banking life insurance has its advantages and limitations, and it’s not the right fit for everyone.
However, dismissing it as a scam overlooks the legitimate benefits it can offer when used properly. Understanding both the pros and cons is key to determining whether it aligns with your financial goals.
Here’s an honest look at both the advantages and disadvantages of implementing an Infinite Banking strategy:
So is Infinite Banking a good wealth-building tool? It certainly can be, but it’s not a silver bullet. It works best as one component of a broader financial plan, not an all-in-one solution.
If you’re disciplined, this is a no-brainer” read more about how Dr. Ethan Childs’ turned their finances around using life insurance.
Infinite Banking life insurance tends to be best suited for a fairly specific group of people:
If you have the means to fund a policy and the discipline to treat it like your own personal bank, IBC can be a great way to build secure, accessible wealth. But if you’re living paycheck to paycheck or aren’t prepared to actively manage your finances, it’s likely not the right solution.
So, is Infinite Banking a scam or a legit strategy? The truth is, it’s a bit of both–or neither, depending on how it’s presented and implemented. At its core, Infinite Banking is a proven way to build and access wealth using whole life insurance. It’s been used successfully by individuals and businesses for over a century.
However, it’s not a get-rich-quick scheme, and it’s not right for everyone’s financial situation. Beware of anyone trying to paint IBC as a miracle money machine – real wealth is built slowly and requires discipline. The key is to work with an agent who takes the time to understand your goals and design a tailored plan.
Infinite Banking is a legitimate financial tool that can provide a lot of benefits if implemented properly in the right situation. But it’s not the only path to prosperity.
Nelson Nash’s original vision was extreme: run your entire income through your whole life policy. Annual income = annual premium.
That’s not realistic for most people today, and even Nash admitted it would take 20 years to get there. But here’s a more practical approach:
Minimum: Around $500/month ($6,000/year)
Anything less, and the policy costs eat into your cash value too much. You’re not building momentum.
Realistic goal: 25% of your income
If you make $100,000/year, that’s $25,000 in annual premiums. This gives you real accumulation without destroying your cash flow.
Optimal: As much as you can comfortably afford without hurting other financial goals
If you have a lump sum sitting around (inheritance, business sale, whatever), you can dump it into the policy upfront through PUAs. This supercharges the growth because you’re earning returns on a bigger base from day one.
This is an easy question to answer, you’re on our website reading this post right now and we teach Infinite Banking to Individuals, families and businesses. We also design and sell policies designed for Infinite Banking, so if you want to get started with Infinite Banking you just have to contact us and we can help you get started.
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Phone: 317-912-1000
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At McFie Insurance, we focus on helping clients build sustainable wealth using properly designed participating whole life insurance to keep more of the money they make, grow their wealth and have financial peace of mind.
We use many of the principles of the Infinite Banking Concept. Our clients use their policies to self-finance projects and John McFie of McFie Insurance has written a 31-page eBook on understanding the Infinite Banking Concept and how it works in our modern environment.
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Understanding the Infinite Banking Concept and How It Works In Our Modern Environment 31-page eBook from McFie Insurance Order here> |
Owning participating whole life insurance will help most people keep more of the money they make, grow their wealth and have financial peace of mind.
We sell properly designed participating whole life insurance policies that work for the Infinite Banking Concept, help people keep more of the money they make, grow their wealth and have financial peace of mind. Give us a call at 702-660-7000 or schedule a strategy session we can help you with your infinite banking life insurance.
Tomas P. McFie DC PhD
Tom McFie is the founder of McFie Insurance and co-host of the WealthTalks podcast which helps people keep more of the money they make, so they can have financial peace of mind. He has reviewed 1000s of whole life insurance policies and has practiced the Infinite Banking Concept for nearly 20 years, making him one of the foremost experts on achieving financial peace of mind. His latest book, A Biblical Guide to Personal Finance, can be purchased here.
This free binder has the information to build your own Infinite Banking system.