Infinite Banking is a strategy with one goal–create better investors. The strategy uses whole life insurance, and occasionally universal life insurance, as a “personal bank” to store wealth while searching for investment opportunities.
But why whole life insurance? What are the benefits? And why does the Infinite Banking Concept prefer whole life to other savings or investment products?
Let’s answer these questions by looking at the seven reasons Infinite Banking loves using whole life insurance.
#1 – Liquidity
First we have liquidity.
Liquidity is the ability to easily and quickly access money.
The purpose of Infinite Banking is to save capital in your personal bank where it is most advantageous. Then, you access capital from your personal bank when smart investment opportunities are available.
Because Infinite Banking revolves around liquidity, it is potentially the most important benefit that life insurance offers.
With life insurance, your money is stored in a cash-value account. At any time and for any reason, you can use money from your cash value–typically through a policy loan for additional benefits.
That means when you find the right investment or business opportunity, you can take advantage.
By storing money in a life insurance policy, you retain the advantages of whole life insurance while waiting for investments.
Liquidity is the core of Infinite Banking and the first benefit of whole life insurance. Now let’s move on to the second benefit.
#2 – Safety
Investments are risky. And often, the best investment opportunities come when the world around you is on fire.
Your personal bank is where you store money until you find opportunities, without risking your cash value.
Life insurance offers a guaranteed minimum growth rate, usually around 2-3%. You cannot lose money in a life insurance policy from volatility.
The life insurance company is contractually obligated to pay you this minimum every year. No matter what. Your cash value won’t lose money from market downturns, recessions, or other economic events.
Think of it like a bank account that earns interest. Your money is accessible, but it is also earning a guaranteed minimum return.
Safety is another reason Infinite Banking loves life insurance.
#3 – Competitive Growth
You store money in your personal bank and wait for opportunities, right?
But when will those opportunities come?
No one knows the answer to that question.
So while you wait, you need the most competitive growth you can get without sacrificing safety and liquidity.
Infinite Banking uses life insurance because it offers competitive growth far beyond other savings vehicles.
When mutual life insurance companies make money on their investments, they pay those gains out to policyholders through a tax-free dividend.
Dividends for 2023 were between 5% and 6% for many major life insurance companies.
Compare that dividend rate to a bank account, bond, CD, or any safe asset, and you’ll see why Infinite Banking chooses life insurance as the primary tool.
Higher dividends give life insurance an edge over these similar products. You get safety, liquidity, and growth potential all in the same product.
#4 – Historical Performance
Competitive growth is nice, but isn’t much without consistency. You want a place to store money with a rock-solid history of safety and competitive growth.
What does whole life insurance look like historically?
Major life insurance companies, like the ones Infinite Banking prefers, have paid policy dividends since the 1800s.
Through the great depression and multiple recessions, these companies continued to pay dividends to policyholders.
That means nearly 150 years of high-yield, dividend growth paid out on an annual basis.
You need to know your money is safe and growing with a company that has a proven track record.
This historical performance is another benefit from life insurance that makes it perfect for Infinite Banking and creating your personal bank.
#5 – Tax Advantages
Next, we have the tax advantages of life insurance.
Taxes are the most significant expense you will pay during your lifetime.
Life insurance offers us tax benefits not included with traditional savings vehicles.
Dividends in a life insurance policy are tax-free. So, you can avoid paying taxes on growth inside a life insurance policy.
The growth you earn in a life insurance policy is not only competitive but also tax-advantaged.
Additionally, when you die life insurance transfers to your beneficiaries in the form of a death benefit, income-tax-free.
You can legally avoid taxes while you are alive and then pass money down to your heirs tax-free.
Aside from being tax-free, the life insurance death benefit is another reason Infinite Banking prefers whole life insurance.
#6 – Life Insurance
Let’s look more at the life insurance, or death benefit, inside a policy.
Unlike a traditional bank account, when you use whole life as a personal bank you also get life insurance as an added benefit.
With the added advantage of insurance, you may have enough death benefit to eliminate other insurance coverage costs–like term insurance.
Eliminating these costs helps you save even more money.
Do you need this death benefit? Maybe not. It’s just another advantage of using life insurance for Infinite Banking.
Now to the last benefit.
#7 – Better Investing
Infinite Banking loves life insurance because it makes you a better investor.
By earning a higher, tax-advantaged rate of return, you can wait patiently for investment opportunities.
You will not feel the need to rush into an investment because your money is working for you with competitive growth and tax advantages.
Your money is then available when obvious opportunities present themselves, whether it’s in real estate, stocks, or starting a business.
If you earn a 1% to 3% return in a bank account or a bond, you may feel pressure to find a higher rate of return–and fast.
This pressure, or fear of missing out, creates an emotional situation where investors make bad decisions.
Life insurance takes that pressure away by offering a competitive rate of return when you aren’t fully invested.
There are many examples of Infinite Banking improving investment returns. Nothing else works as well as life insurance does for creating better investors. And that’s the point of Infinite Banking.
Infinite Banking and Whole Life Insurance
Life insurance offers benefits that cannot be found in other savings vehicles. When creating a personal bank as a hub for investors, life insurance is unmatched.
Infinite Banking is often called a scam because it uses life insurance. If there were a better product option, Infinite Banking would use it. However, Infinite Banking chooses life insurance because it is the best option for storing wealth.
Life insurance offers you everything you need to create a personal bank and more.
With these benefits, you can become a better investor and work towards building wealth and securing your financial future.
