{"id":2280,"date":"2022-09-09T20:04:00","date_gmt":"2022-09-10T00:04:00","guid":{"rendered":"https:\/\/blog-admin-panel.ladderlife.com\/?p=2280"},"modified":"2023-10-20T11:08:56","modified_gmt":"2023-10-20T15:08:56","slug":"infinite-banking-whole-life-insurance","status":"publish","type":"post","link":"http:\/\/ladderlife.com/blog\/infinite-banking-whole-life-insurance\/","title":{"rendered":"Why you’re suddenly seeing infinite banking everywhere"},"content":{"rendered":"\n\n\t

Financial advice is trending, with the TikTok<\/a> hashtag #fintok accumulating 1.5 billion views alone<\/a>. Chances are a video promoting “infinite banking” might have caught your eye, hailing it as “the secret of the rich” and promising the ability to use a whole life insurance policy to “become your own bank.” So is it a scam? Let’s just say it’s a lot more complicated than what some influencers have been portraying.<\/p>\n

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Here’s what infinite banking is, how life insurance plays into it, and information to help you make an educated financial decision.\u00a0<\/p>\n

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Infinite banking and whole life insurance<\/b><\/h2>\n

To understand infinite banking, you first need to understand how whole life insurance works. So bear with us – we’ll get there, promise!\u00a0<\/p>\n

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What is whole life insurance?<\/strong><\/h3>\n

Whole life insurance is part of a family of life insurance products called “permanent” or “cash value” life insurance. With a whole life insurance policy, you pay premiums (usually monthly amounts) to the insurance company. In return, you get two benefits: a death benefit and a cash value.\u00a0<\/p>\n

The death benefit<\/i><\/h4>\n

The death benefit is the money your beneficiaries should get if you die. It’s “permanent” in that this benefit stays active as long as your policy stays active, which can be, as the name indicates, your whole life. Permanent life insurance is opposed to term life insurance, which lasts for a pre-defined period of time-for example, 10 or 30 years-and is meant to protect your family when they need you the most, at a much more affordable price.<\/p>\n

The cash value benefit<\/i><\/h4>\n

Unlike term life insurance, whole life insurance also has a cash value benefit. The premiums you pay minus charges and fees go towards your “cash value,” which grows at a tax-free guaranteed minimum rate and may include non-guaranteed dividends as well.\u00a0<\/p>\n

It’s important to note that when you die, your beneficiaries will not receive any money from the cash value, only the death benefit. The insurance company will most likely retain anything that remains of your policy’s cash value.<\/p>\n

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A whole life insurance scenario\u00a0<\/strong><\/h3>\n

Let’s look at a typical whole life scenario: Nora is a healthy 35-year-old and gets a whole life insurance policy with the goal of protecting her family and building savings for her retirement. She pays $775 every month until she is 65 for a $500,000 death benefit* for her family (in contrast, the same death benefit for a 20-year term life policy would cost her less than $30 a month**).<\/p>\n

Now let’s look at the separate cash value component. Due to charges and fees, it will take Nora 10 years for her cash value to “break even.” That means that after 10 years, she will have paid $93,000 in premiums ($775 a month x 12 months x 10 years), and her cash value will also be worth $93,000. From there she will start seeing positive returns relative to her paid premiums.<\/p>\n

For now, note that this typical whole life insurance scenario will not help you with infinite banking, which generally requires a large up-front premium payment in order to quickly build up a cash value.<\/p>\n

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Borrowing money from your whole life insurance<\/strong><\/h3>\n

As your cash value grows, you can start borrowing from it. It works like a regular loan: you take money out and have to pay interest until you repay it in full.\u00a0<\/p>\n

This concept of “borrowing from yourself” is central to the idea of infinite banking (more on that in a minute). But it’s also quite misleading. Keep in mind that Nora did not gain access to new large amounts of capital; she’s simply taking out money that she’s put in in the first place and has grown moderately over time-and paying for the right to do so.\u00a0<\/p>\n

It’s also very important to note that Nora’s outstanding loans, plus any interest owed, directly reduce her death benefit. So if she dies before the loan is paid back, her loved ones will be left with less money. Eventually, if the loan is not paid back, the whole policy could lapse.\u00a0\u00a0\u00a0<\/p>\n

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So what is infinite banking?<\/strong><\/h3>\n

If you have access to a large sum of cash, the idea is to park it in a whole life insurance policy via a large lump sum premium payment. From there, you can borrow the policy’s cash value and invest it in other places, so that your money works in two places at once: earning dividends in your whole life policy and potentially generating revenue wherever else you’ve invested it. It’s a bit like buying a house with cash, then borrowing against the house and putting the money to work in the market. Because the house theoretically keeps appreciating, you are now earning in two places instead of one. If you keep repeating this process “infinitely” you are leveraging yourself and “infinitely banking.”<\/p>\n

To recap, infinite banking is NOT:<\/p>\n