The Primer Series #1: Life Insurance & The Infinite Banking Concept

Life Insurance & The Infinite Banking Concept

Part 1 in a Series by Denis Shapiro




The Infinite Banking Concept (IBC) is based on investing in whole life insurance policies from a mutual life insurance company with the goal of maximizing the cash value of the policies instead of the death benefits.

In December 2015, my oldest son  was born. Like most parents, I would describe my child’s birth as the day my life changed forever. I was so happy that he was healthy and his mother was recovering from surgery, but then my mind immediately switched to planning. I now had dependents—and protecting them was something I took very seriously. By the time we left the hospital, I was looking into life insurance policies and 529 college savings plans.

Some people in this situation overreact and purchase the most expensive insurance they can afford. Maybe it’s a smart move for some, but I needed to find something that was affordable but didn’t handicap my family’s future. Based on my prior experience as a licensed life insurance salesman and as someone who wanted to achieve financial independence at an early age, my strategy was to buy the most affordable term policy available that would cover our mortgage balance in case something happened, and then invest the rest. This way, my family could pay off our house and live without the largest expense a family has to contend with. After some research, I bundled the purchase of our primary home with an equivalent term policy matching the mortgage life and balance. The price was an unbeatable $32 per month. I did not see this as an investment. This, by definition, was an insurance policy and belonged on the expense side of my personal balance sheet.

This is usually where most people stop researching when it comes to life insurance—just as I did until 2018, when I began hearing about a different type of policy that investors were using: high-equity cash value policies.

What appealed to me about these policies is that they are uniquely capable of serving as an investment vehicle for investments that you plan to make anyway.

The primary goal is to provide the investor access to cash.

The secondary goal is the death benefit. No other investment vehicle that I have come across can be so easily plugged into an existing investment strategy as a high-equity cash value policy. In fact, I haven’t met an investor yet that hasn’t combined this type of policy with other investments that are mentioned in this article series.

High-equity cash value policies also come in handy for small businesses and even small LLCs that are created specifically for investments. They can be used in a variety of ways:


  • To create an incentive in recruiting key employees
  • As a business line of credit in times of financial need or to take advantage of an immediate opportunity
  • To provide insurance for partners to exit the LLC in an orderly fashion
  • To provide a tax-deferred structure for existing profits
  • To provide an alternative to a 401(k) plan by utilizing the loan feature in later years


After reading this article, it will still be perfectly normal to have deep reservations about high-equity cash value policies. My goal is just to start the conversation here. After all, it took me two years of research and conversations with other investors in this space to commit to my first policy because the pros and cons are stark.



A Closer Look at the Asset

High-equity cash value life insurance policies go by many names in today’s market: “Be your own bank,” “velocity banking,” “the perpetual wealth strategy,” and “infinite banking concept” are some of the more well-known versions, with IBC being the most common term. The asset is created when an individual purchases a customized life insurance policy from a mutual life insurance company. These are privately owned companies in which the policyholders are also the owners of the company and are therefore entitled to dividends from its annual profits. These dividends have an unmatched track record of paying out, going back almost 200 years. Some well-known examples are Penn Mutual, which has paid a dividend for 170 years,[1] and MassMutual, which has paid a dividend since 1851.[2] If you’re wondering how you can tell if a life insurance company is a mutual company or not, it’s very simple: It’s right in the name.

Since the asset is a life insurance policy, the insured has to qualify from a health and financial standpoint. Usually, the goal of a whole life insurance product is to provide the highest possible death benefit (i.e., insurance payout) for your loved ones; the cash value of the product comes way down the list of pros associated with whole life insurance. With IBC policies, the paradigm is inverted: The goal is to maximize the cash value in order to create your own “personal bank.” What I mean by that is that once your life insurance policy is designed and funded, you will have immediate access to a significant portion of your initial investment. The death benefit is just a nice cherry on top that gets thrown into the deal.

Here’s where the “be your own bank” concept kicks in: Once the cash value of your IBC policy has built up to meet your investing needs, you can effectively use the loan option as your own personal line of credit that doesn’t require credit checks, qualification, or any kind of underwriting.

Loans are approved in hours, not days, and they never show up on your credit report, and your policy serves as collateral. In the event that something happens to you, the death benefits are offset by the loan balance, but the remainder is paid out to your loved ones. The loan interest rate is usually variable, but some companies offer fixed rates, as well. At the time of this writing, the loan interest rate is around 5%. This makes taking a loan out today a wash because most mutual companies pay a dividend in excess of the 6% range.

As you approach your retirement years, your policy should have experienced years of compounded tax-free growth uncorrelated to the stock market. Now, your policy shifts over toward the distribution phase. Assuming you were a good steward of your cash, you can now start taking out loans for personal use with no intention of paying them back. And because these are classified as loans and not income, the IRS does not tax these gains.

[1] Raymond Caucci, “Penn Mutual continues historic dividend track record.” Penn Mutual Perspectives (December 15, 2020),

[2] “MassMutual approves estimated 2021 policyowner dividend payout of more than $1.7 billion.” MassMutual (November 2, 2020), 


The Pros and Cons of IBC Investing



  • Immediate loan access with reasonable rates; no credit approval needed or credit impact
  • Money can work for you in multiple places at the same time because your cash value increases even when there are outstanding loans
  • There is a guaranteed savings rate, as well as a non-guaranteed dividend paid by highly rated insurance companies going back over 100 years
  • Death benefit is the cherry on top!
  • Under IRC 7702, the interest and dividends on the policy are not taxable income
  • Creditor protections vary by state; some states protect 100% of your cash value
  • Deferred compensation alternative — can be easier to set up for a small business owner or self-employed individual; can also serve as a way to attract key employees
  • Accredited status not needed to purchase a policy



  • It takes a high reoccurring annual premium to build up the cash value in an IBC policy
  • It takes years to break even, so you’re sacrificing higher potential immediate returns of other investments
  • If you overfund your policy, you lose most of the benefits
  • You must qualify from a health and financial perspective
  • Because it is error-prone, you need a licensed agent that specializes in IBC
  • You have to be an honest banker and pay back your loans in the accumulation stage
  • IBC policies take time to set up; expect to pay for that time



If you liked this article and wish to continue on your path in learning about alternative investments, please make sure to check out my other educational articles as well as my bookThe Alternative Investment Almanac: Expert Insights on Building Personal Wealth in Non-Traditional Ways

Disclaimer: The information presented in this article is for informational purposes only and does not constitute professional financial or investment advice. The author does not make any guarantees or promises as to the results that may be obtained from it. You should never make any investment decision without first consulting with your own financial advisor and conducting your own research and due diligence. Even though, the author has made reasonable efforts to ensure that the contents of this article were correct at press time. The author disclaims all liability in the event that any information, commentary, analysis, opinions, advice and/or recommendations contained in this article results in any investment or other losses. Your use of the information in this article is at your own risk.


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