Those who are against Infinite Banking often discuss the concept with contempt and fear instead of simple logic and reason. They twist ideas, making Infinite Banking seem like a terrible option.
The reality is Infinite Banking has its pros and its cons. Just like any financial approach, there are problems with the Infinite Banking Concept and isn’t perfect for everyone. There are situations where it makes sense and where it doesn’t.
Let’s address the arguable problems with Infinite Banking and build our understanding of the facts.
“Infinite Banking is Only About Replacing Banks”
People believe infinite banking is only about replacing banks because of its founder’s writings.
Infinite Banking began with R. Nelson Nash, who promoted Austrian economics. He believed that using banks caused inflation and was a system designed to rob everyday individuals of their hard-earned money.
He used whole life insurance as a vehicle to get money out of the bank’s control.
And although Nash may be right about banks and inflation, this is not often the core motivation for those who implement this strategy.
If you speak to almost anyone who follows the concept, their goal using the Infinite Banking Concept is to maximize wealth, through the use of whole life insurance.
Not getting money out of the bank.
Most Infinite Banking policyholders have bank accounts and likely financed their mortgage through a bank.
In fact, there are many cases where bank financing adds a financial benefit because it allows us to leverage life insurance policies for better overall results.
If your goal is removing your money completely from the banking system, then Infinite Banking can facilitate that.
However, for the majority, Infinite Banking is not about replacing banks or bank financing.
“Whole Life Insurance is Terrible”
The next alleged problem with Infinite Banking is that whole life insurance is a terrible purchase. They cite statistics saying that 80% of those who buy a whole-life policy end up canceling the policy before they die.
While the statistic is likely true, the argument doesn’t apply to Infinite Banking.
Whole life insurance and Infinite Banking are not the same thing. A whole life policy bought through a local insurance agent is nothing like an Infinite Banking policy.
It’s the difference between a stock Acura Integra and a souped-up version from the latest “Fast and the Furious” movie.
Despite some similar features, the core components are entirely different.
Thus, standard whole life insurance functions poorly for Infinite Banking.
Infinite Banking policies are completely unique and structured for cash value, not life insurance.
“It Takes Time to Build Cash Value”
Another “problem” with Infinite Banking is that it builds cash value over time.
The argument is that a bank serves you better because your money is immediately accessible.
This is true.
With Infinite Banking and whole life insurance, your money isn’t immediately available. Typically, only 50-60% of the first-year premiums are accessible.
Over time, more paid premiums become available, and higher growth is realized.
On the other hand, an Infinite Banking policy provides benefits you won’t get at a bank.
The better question is, “Are the positives worth the tradeoff?”
Here are some of the benefits that come with whole life insurance:
- Guaranteed Minimum Returns
- Competitive Growth Rates
- Access to Capital
- Tax Advantages
- Death Benefit
The tradeoff for these advantages is that it takes time to build cash value. You must weigh this fact against the benefits.
“The Growth Difference Isn’t Worthwhile ”
The next argument states Infinite Banking is simply a way to earn a 3-5% growth against the 1-2% growth rate you can get at a bank. That difference really isn’t a big deal.
Hopefully, the individual making this argument doesn’t manage money.
Let’s look at the significant difference between 2% growth and 5% growth.
In 45 years, $100,000 in a bank account with a 2% growth, taxed annually, would grow roughly to $186,942.
In an Infinite Banking policy, $100,000 over a 45-year period at 5% would grow to around $898,500.
The Infinite Banking policy is also tax-advantaged, meaning you must earn 7.14% in a bank account for the same value.
That’s not a small difference.
The growth rate in a whole life insurance policy is substantial and unmatched. The downsides of Infinite Banking might not be worth that upside to you, but there is not a better place to store money with the same benefits of whole life insurance.
“Infinite Banking is Too Expensive”
Another suggested problem is that whole life insurance is too expensive.
Let’s look at the cost of a policy over time.
In whole life insurance and Infinite Banking, we have a cost–the cost of insurance.
This is because of government regulation. The government didn’t want individuals easily put money into life insurance cash value because of the tax advantages.
Regulations were established to ensure a certain amount of insurance is purchased as a percentage of cash value in the early years.
That cost of insurance is the reason cash value takes time to accumulate in a life insurance policy.
The expense of whole life insurance is the cost of insurance.
And as time goes on, that cost decreases as a percentage of the overall policy.
The question once again is this: “Are the benefits of whole life insurance worth the early cost and time that it takes to build the policy?”
Those who use the Infinite Banking Concept would say they are.
“Shady Agents Put Their Interests Over Yours”
It is often suggested that you should fear whole life insurance and Infinite Banking agents.
They say the wrong agent can screw you over, agents are shady, and they put their interests over yours.
In a way, this is true, a shady agent can create a policy that benefits them at your expense.
What’s the solution here?
If your agent is new, or you are feeling uncertain, ask an expert with experience to double-check the policy illustration.
I know many Infinite Banking practitioners would happily glance at a policy for you and ensure it is correctly structured.
Or you can use a company that has a history of creating these policies.
Most preferably, work with someone who has successfully used the Infinite Banking Concept and whole life insurance in their own financial lives.
There is a simple way to ease fears about agents. Find someone you can trust, and then verify.
You should absolutely find peace of mind before making a big decision about Infinite Banking. But don’t let fear-mongering scare you off from a potentially beneficial investment for your future.
“You Have to Qualify For Insurance”
What if you don’t qualify for insurance? Or worse yet, what if you try to get a policy and the numbers don’t look good?
Well, then don’t buy the policy, or look for a different solution.
When buying an insurance policy, there must be a life insured. And yes, sometimes, if the person is too young, too old, or in bad health, those policies won’t work efficiently.
But, those are problems best addressed when you get to that point.
The reality is, most situations have a simple or creative solution that makes sense if you want to get the benefits of Infinite Banking and whole life insurance.
“You Could Damage Your Current Life Insurance Policy”
Lastly, some argue that you could damage your current whole life insurance policy (if you have one). Borrowing from your current policy and using it for Infinite Banking could jeopardize the insurance coverage that you and your family need.
This is true, most whole-life policies aren’t set up for Infinite Banking.
An agent should look over your policy. Then, they can help you determine if your current policy is worth building cash value in, or if you should open a separate policy for Infinite Banking and building wealth.
Infinite Banking is really not about insurance. It’s good to have insurance if necessary, but a smart Infinite Banking agent won’t jeopardize your insurance coverage to build future wealth.
That’s not a smart tradeoff.
Also, Infinite Banking practitioners are generally conservative compared to traditional financial advisors. Their recommendations usually discourage risk and emphasize growth.
You should not use a whole life insurance policy created for insurance purposes as an Infinite Banking policy without consulting an expert first.
Infinite Banking Isn’t Complicated
These so-called problems with Infinite Banking are always blown out of proportion. And some Infinite Banking sales material makes Infinite Banking look too good to be true.
It’s a battle of the extremes. And both extremes make their points using emotion, not logic.
But you shouldn’t make long-term financial decisions based on emotion.
Infinite Banking isn’t complicated, magic, or revolutionary. It’s a simple system that revolves around storing money and then accessing that money for investment opportunities.
