Does Infinite Banking Work? 5 Myths Debunked

Infinite banking is a new concept but is it a scam?

Infinite banking is about utilizing high cash value whole life insurance to become your own banker and manage your financial outcomes with a liquid, safe investment strategy. At first, many who offer these policies make it seem too good to be true.

On the other hand, those with an agenda to sell other financial products create false or misleading information to make whole life insurance or Infinite Banking seem impossibly bad. Unfortunately, this leads to many myths and misinformation about Infinite Banking as a retirement planning and savings method.

Let’s look at these myths surrounding the Infinite Banking Concept and find some of the truth behind this concept and the reality of this investment strategy.

What is the Infinite Banking Concept?

Infinite Banking is fairly new, but the concept has existed for much longer. Cheerleaders of the idea promote it as a way to ‘become your own banker’ through the dividend-paying portion of a whole life insurance policy.

The idea behind Infinite Banking is to use your assets for big cash needs instead of loans from a bank or other creditors. For example, when you pay premiums on a whole-life policy, you build up a cash value that can be borrowed against. You can then borrow from this cash value from the account for big purchases like a home or wedding costs.

When you borrow from the policy, your cash value is used as collateral on the loan instead of other assets. As a result, rates on the loan may be lower than other types of loans because the insurance company knows it can take the collateral quickly and easily if you don’t make payments. You also don’t have to worry about your car being repossessed like with other loans or high rates on payday loans.

Myth #1 – Infinite Banking Is A Scam

Many investment options, such as real estate, stocks, and bonds, provide a way to increase your wealth with risks. Infinite Banking is a safe way to increase wealth with less risk and no loss provisions.

However, because of how many promote Infinite Banking, it has often been deemed ‘the Infinite Banking scam’ by outsiders.

Many see it as a scam because they think it sounds too good to be true. The truth is that Infinite Banking and whole life insurance offer a safe investment alternative that grows slowly but competitively. It is not a magic bullet and will not make you a millionaire overnight.

Infinite Banking utilizes tax advantages, safety, death benefit, and growth to create an investment strategy that works for those who want to minimize losses from the stock market and mutual fund investments.

The Infinite Banking Concept requires strict discipline and must be implemented for a long period of time to see worthwhile results. It will not work as a short-term investment or a getich option.

This long-term implementation lets investors increase their wealth by earning between 4-6%, or even higher, per year compound interest tax-free. This money is also transferred income tax-free to our beneficiaries at death.

Myth #2 – Whole Life Insurance is an Awful Investment

Many radio entertainers claim that whole life insurance is a bad investment. However, they are also sponsored by term life insurance providers, which could be seen as a conflict of interest.

Whole life insurance, when structured properly, offers competitive growth and safety that you cannot find anywhere else.

Compared to other safe investment options, like bonds and CDs, there is some financial evidence to support Infinite Banking offering a smarter alternative.

Those who find themselves losing money or breaking even may find that Infinite Banking and whole life insurance offer a better alternative investment solution to their current portfolio.

Myth #3 – Infinite Banking has High Fees

Infinite Banking policies pay the agent in the first few years after they are created. In year one, compared to other investments, this can make it seem like Infinite Banking has higher fees.

Compared to the lifetime of fees often associated with other investment options, these fees often become more reasonable and can even be much lower.

Because of the way whole life insurance is structured, the fees are different. This does not make them better or worse, just different. Understanding how the fee structure works within the Infinite Banking Concept and whole life policies will help you better decide if the fees and Infinite Banking are right for you.

Myth #4 – I Don’t Get My Cash Value When I Die

Another myth is that when we die, the cash value is completely eliminated, and all the beneficiary gets is the death benefit. Many opposed to Infinite Banking use this argument to paint a false picture about Infinite Banking to stir up anger and emotions in those studying the concept.

The truth is, cash value inside a life insurance policy is already included in the death benefit. This is because cash value, by definition, is the portion of the death benefit that is able to be liquidated at any given time.

If the beneficiary received the cash value and the death benefit, they would be, in essence, receiving free money. If that were the case, everyone would buy Infinite Banking policies, and we would all be earning free money.

Myth #5 – Infinite Banking Takes Too Long

Infinite Banking is a long-term strategy, and many who argue against Infinite Banking say it takes too long.

However, at the same time, they do not consider that the available balance inside of a 401k is relatively zero dollars. 401(k)s and most other government-sponsored plans cannot be used, and if the government ever decided to change policies, these could potentially be wiped out.

This is highly unlikely, but not impossible.

Infinite Banking is a long-term strategy with its advantages and disadvantages. Once again, emotional arguments do nothing for the individual. If you are not planning on utilizing Infinite Banking for the long term, it will not work. It does take time, but too long is relative to the individual, not the investment.

Does Infinite Banking Work?

Infinite Banking, like any investment, has its downsides. It will not work to meet everyone’s needs and goals. However, these myths do nothing for the individual investor. Setting your own goals and finding the best solution is the smartest way to approach investing. Many investment options will sound alluring if you do not have specific goals.

Suppose you’re still wanting to learn more about infinite banking. In that case, you can also consider talking about this to your fiduciary financial advisor, as they will be able to provide high-level insights after taking a deep look into your income and expenses. It’s important to get a wellounded picture of your financial situation before going ahead with infinite banking because you need to know that you can afford the higher premiums on the whole-life policies.

Previously published at Wealth of Geeks.

By Joseph Hogue