How To Use Life Insurance As A Bank?
Infinite banking is a strategy in which policyholders use permanent life insurance, mainly whole life insurance, as a personal line of credit. By borrowing against their life insurance policies, policyholders avoid taking out loans from traditional lenders. The following table shows the pros and cons of using life insurance as a bank:
| Pros | Cons |
|---|---|
| Personal loans without credit checks or fixed repayment dates | High premiums for whole life insurance |
| Tax-free cash value growth and tax-free loans | Years of building up the cash value to take out loans |
| No need to pay back loans, but potential consequences | Discipline and monitoring required to maintain coverage and cash value |
| Can improve cash flow and secure money for unexpected expenses | Whole life insurance primarily designed for death benefit |
While infinite banking can create wealth and reduce the amount of interest paid to financial institutions through traditional loans, it is not suitable for everyone. Policyholders need to contribute around 10% of their income to the policy’s cash value every month, which may not be affordable for some. Moreover, using life insurance as an investment and source of liquidity requires careful monitoring of the policy’s cash value fluctuations and discipline to maintain coverage. Hence, individuals interested in infinite banking should consult a fee-only financial advisor to determine whether this strategy suits their goals, needs, and budget.
For people who need life insurance, but not necessarily the benefits of whole life insurance, term life insurance is a suitable alternative. Investing the difference paid in premiums between term and whole life insurance into a 401(k) or Roth IRA can help fund retirement while maintaining life insurance coverage. It is also essential to prioritize building an emergency fund that covers at least three months of living expenses before following an infinite banking strategy.
Our carriers beat Colonial Penn, Globe Life, and AARP 96% of the time*
* Based on website quote requests, through 5/31/23.
(Check your rate to see their rates vs. ours)
