Infinite Banking with Life Insurance

How Does Infinite Banking Work?

Infinite banking uses a properly structured life insurance policy as a financial foundation. Over time, your premium payments build up cash value within the policy. You can then borrow against this cash value for major expenses, investments, or opportunities—acting as your own source of financing.

• Step 1: Fund Your Policy – Contribute premiums above the minimum cost of insurance to maximize cash value accumulation, but within IRS “MEC” (Modified Endowment Contract) limits to maintain tax advantages.
• Step 2: Grow Cash Value – Policy cash value grows tax-deferred, either at a fixed rate (whole life) or linked to an index (IUL), with downside protection.
• Step 3: Access Capital – Take policy loans against your cash value. Loans are not considered taxable income if the policy stays in force and is not classified as a MEC.
• Step 4: Flexible Repayment – Repay loans on your schedule, or let them accrue—unpaid balances reduce the policy’s death benefit and cash value until repaid.
• Step 5: Repeat as Needed – Use your policy to finance opportunities or emergencies, paying yourself back with interest, instead of a bank.

Infinite Banking Step	How It Works	Key Benefit
Maximize Policy Funding	Pay in excess of minimum premium (not exceeding MEC limits)	Boosts available cash value
Grow Cash Value	Tax-deferred growth, either fixed or index-linked	Potentially higher accumulation than traditional savings
Borrow Against Policy	Take a loan for any purpose, using cash value as collateral	Access to capital without credit checks or bank approval
Repay on Your Terms	No set loan repayment schedule; interest accrues	Flexibility; pay back as desired
Keep Policy in Force	Ensure policy stays funded and managed	Maintains tax advantages and coverage

Infinite Banking: IUL vs. Whole Life

Infinite banking can be accomplished using either a whole life or indexed universal life policy. Each has advantages depending on your needs and preferences.

	Whole Life	Indexed Universal Life (IUL)
Growth Method	Guaranteed fixed interest + dividends	Index-linked, with cap & floor (not direct market investment)
Premium Structure	Fixed, predictable premiums	Flexible premiums, adjustable coverage
Cash Value Access	Policy loans, usually with stable growth	Policy loans, growth may vary annually
Loan Interest	Typically fixed or variable by carrier	Typically variable, depending on insurer
Ideal For	Those seeking steady growth, high predictability	Those comfortable with some variability, seeking potential for greater accumulation

Potential Benefits & Drawbacks

Potential Benefits	Potential Drawbacks
Tax-advantaged growth and access to capital No required loan approval or credit check Ongoing policy growth—even with loans outstanding Flexible repayment on your schedule Ability to use capital for business, investments, large purchases, or emergencies	Requires strong, consistent funding for maximum efficiency Policy costs and charges can reduce cash value if not managed Unpaid loans reduce death benefit and may trigger taxes if policy lapses More complex than traditional savings or bank loans Not all policies are designed for infinite banking—structure matters

Common Uses for Infinite Banking

• Financing major purchases or life events (cars, home improvements, tuition, etc.)
• Providing short-term or emergency liquidity
• Investing in new business or real estate opportunities
• Creating a “family bank” for future generations
• Supplementing retirement income in a tax-advantaged way

How Policy Loans Work: Step-by-Step

Step	Description	Key Watchouts
1. Accumulate Cash Value	Fund policy above minimum to maximize cash accumulation	Stay under IRS MEC limits to keep tax advantages
2. Request a Policy Loan	Borrow up to your available cash value (typically 90% or less)	Loan is collateralized; policy stays in force
3. Use Funds as Needed	Utilize loan for any purpose: investments, purchases, emergencies	Funds are not taxable if policy is maintained
4. Repay at Your Own Pace	Flexible repayment—no mandatory schedule	Interest accrues; unpaid loans reduce death benefit/cash value
5. Maintain Policy Health	Monitor to avoid policy lapse or tax issues	If loans exceed cash value, policy could lapse and trigger taxes

Infinite Banking: Myths & FAQs

• Myth: “Infinite banking is only for the ultra-wealthy.”
  Fact: Anyone with sufficient cash flow and long-term perspective can use this strategy, if their policy is designed and funded properly.
• Myth: “Loans are free money.”
  Fact: Loans must be repaid with interest; unpaid balances reduce your benefit and can risk your policy if unmanaged.
• FAQ: “Can I use any life insurance policy for infinite banking?”
  Answer: Only permanent policies (whole life or IUL) with cash value can be structured for infinite banking. Not all policies are suitable.
• FAQ: “Will I pay taxes on loans or withdrawals?”
  Answer: Policy loans are not taxable if the policy remains in force and stays below MEC limits. Withdrawals above cost basis may be taxable.
• FAQ: “What happens if I don’t repay the loan?”
  Answer: Any unpaid loan and accrued interest reduce your death benefit. If loans exceed available cash value, the policy can lapse, triggering taxes and loss of coverage.

Is Infinite Banking Right for You?

Infinite banking is best suited for those with steady income and a commitment to funding their policy above the minimum required. Success with this approach depends on proper design, funding, and careful management over time. It’s not a “get rich quick” method, but a disciplined, long-term wealth-building tool.

• Have you maximized tax-advantaged retirement accounts already?
• Are you comfortable with a multi-year funding commitment?
• Do you value flexibility and control over your capital?
• Are you willing to manage policy loans and track policy health?

For guidance on structuring an infinite banking strategy—or reviewing if your current policy is suitable—Foxcove Financial provides licensed insurance-based guidance, including policy design, loan mechanics, and tax implications.