The idea is to borrow against the policy’s cash value, repay the loans with interest, and build wealth while maintaining liquidity. While appealing in theory, infinite banking with any form of permanent life insurance is an inefficient and risky strategy for financial planning and investing. Below, we explore why this approach falls short across all permanent life insurance products.
Permanent life insurance policies come with substantial costs that undermine their effectiveness as an investment vehicle:
These costs can take years to overcome, meaning your “bank” starts at a disadvantage compared to low-cost investment options like index funds or ETFs, which typically have expense ratios below 0.5%.
Permanent life insurance policies offer cash value growth, but returns are generally underwhelming:
For example, investing $10,000 annually in a diversified stock portfolio at a 7% average return could grow to over $1 million in 40 years. The same amount in a permanent life policy, regardless of type, might yield half that after fees and conservative returns.
Infinite banking with permanent life insurance involves navigating a maze of policy terms, loan provisions, and repayment schedules. Each product has unique pitfalls:
Policyholders often struggle to understand these mechanics, leading to mismanagement or unexpected costs. Loans against cash value accrue interest (typically 5–8%), and improper repayment can reduce the death benefit or cause the policy to lapse. In contrast, investments like mutual funds or real estate are far more straightforward.
Permanent life insurance ties up significant capital in a low-yield, often illiquid asset. Cash value isn’t fully accessible in the early years due to surrender charges, which can last 10–15 years across all permanent policies. Borrowing or withdrawing funds reduces the death benefit, undermining the policy’s dual purpose as insurance and investment.
This capital could instead be invested in more liquid, higher-return assets like stocks, real estate, or a small business. The opportunity cost of locking money into any permanent life policy outweighs the benefits of a “personal bank.”
Infinite banking conflates insurance with investing, a fundamental flaw regardless of the permanent life product used. Life insurance is meant to provide a death benefit to protect dependents, not to serve as a wealth-building tool. Term life insurance, which is far cheaper, meets most people’s insurance needs while freeing up funds for actual investments.
For example, a healthy 30-year-old might pay $300–$500 annually for a $500,000 term life policy, compared to $5,000–$10,000 for a permanent life policy with similar coverage. The difference can be invested in a retirement account, yielding better long-term results.
Proponents of infinite banking tout tax-deferred cash value growth and tax-free loans. However, these benefits are not unique and come with caveats:
Other tax-advantaged vehicles, like Roth IRAs or Health Savings Accounts (HSAs), offer similar benefits without the high costs or restrictive terms.
Infinite banking requires disciplined loan repayment to maintain policy viability. Borrowing too much or failing to repay loans can cause any permanent life policy to lapse, resulting in:
This risk is heightened in universal life and indexed universal life policies, where rising mortality charges or poor market performance can drain cash value unexpectedly. Economic downturns exacerbate this risk for those without significant financial discipline or surplus income.
A “buy term and invest the difference” strategy outperforms infinite banking for most people:
This approach provides adequate insurance, higher investment returns, and greater flexibility without the drawbacks of permanent life insurance.
Infinite banking with permanent life insurance—whether whole life, universal life, variable life, or indexed universal life—sounds enticing but is a suboptimal choice for financial planning and investing. High costs, poor returns, complexity, and opportunity costs make it a risky strategy. By separating insurance and investment decisions, opting for term life insurance, and investing in diversified, low-cost assets, you can achieve financial security and growth without the pitfalls of infinite banking.
Why Infinite Banking with Permanent Life Insurance is a Flawed Financial Strategy The “infinite banking” concept, popularized by Nelson Nash in Becoming Your Own Banker
Social Security and Medicare: A Race Against Time Each year, the Trustees of the Social Security and Medicare trust funds provide detailed reports to Congress that track the progra
One Big Beautiful Bill Act (OBBBA): A Comprehensive Tax Reform Big tax changes are coming—but with the right planning, they could work in your favor. OBBBA builds on the 2017 Tax
