Vulnerabilities Associated with Infinite Banking
There are several vulnerabilities which must first be acknowledged and then avoided if Infinite Banking is to be successful. Here is the list of those vulnerabilities:
Thinking it to be a product instead of a process
Attempting to rush the process
Failing to apply the process completely
Choosing to be confused instead of accomplished
The first and foremost reason why Infinite Banking fails to meet expectations is in confusing the process of Infinite Banking with a product. Materialism has led many to believe that all financial gains are the result of certain purchases like real estate, stocks, 401(k)s, IRAs, etc. This mindset discounts the fact that all purchases have a cost. This cost is called the cost of finance. Because Infinite Banking is the process of recovering the cost of finance, anyone confusing this process with a product is vulnerable to limiting or eluding the rewards which come from Infinite Banking.
Failing to appreciate this fact, that Infinite Banking is a process not a product, encourages people to attempt to rush the process by funding the product used in the process. Namely, they rush to put more money towards their life insurance premiums than they comfortably and affordably should. It would behoove them to comprehend the fundamental rules of Infinite Banking as found in Becoming Your Own Banker, Unlock the Infinite Banking Concept. Here are those simple rules:
The Participating whole life insurance policy should be funded with the highest cost life insurance possible
The Modified Endowment Contract (MEC) regulations imposed by the IRS should be carefully observed and not crossed over, while
The death benefit should be minimized
Those who ignore these simple rules and rush headlong into funding participating whole life insurance without abiding by these rules tend to run afoul of the MEC regulations or end up maximizing the death benefit to their own disappointment. Adding term riders to participating whole life insurance increases the cost of finance for the policyholder when they borrow against the policy in the process of practicing Infinite Banking and it violates the fact that the death benefit should be kept at a minimal level.
Not following the process once the product has been built up and is ready to be leveraged for Infinite Banking, prevents many from enjoying the rewards of recovering the cost of finance. Borrowing against the equity of a participating whole life policy doesn’t recover the cost of finance unless the policy loan is repaid, or the loan taken is used to create more value than the interest charged for the policy loan. Failing to follow the process, the process of banking where money lent is repaid with interest, destroys the benefits of Infinite Banking. To overcome this vulnerability, good records and accountability need to be exercised. Using the tools on MoneyTools.net is the best way to eliminate this vulnerability and set up the accountability necessary to recover the cost of finance when borrowing money from any source, but especially from the cash values of life insurance.
Confusion is an act of the will. Education can be acquired so you can become well-informed and not remain willfully confused about how Infinite Banking works. Infinite Banking is NOT:
About the dividends or the interest earned in a life insurance policy versus the policy loan interest rate
To be compared to the returns which can be earned on things which are purchased like real estate, stocks, bonds, 401(k)s, IRAs etc.
The rate of return earned on savings vs. on premiums paid into a life insurance policy
The essence of Infinite Banking is, “The ability to recover the cost of finance!” It may be all together possible to earn a higher rate of return on money spent on life insurance premiums than what can be earned in life insurance. But that misses the point of Infinite Banking. For example:
To make a certain investment cost $200,000. This money must come from someplace. If it comes from savings, then the interest earned on those $200,000 is lost once the investment is made. If this interest is 3%, then over the next 10 years $68,783 will be lost to the cost of finance.
If the $200,000 to make this investment comes from a traditional loan which has an interest rate of 4.851% over 10-years, then $57,141 will be lost to the cost of finance.
A margin loan of $200,000 taken against the balance of a portfolio requires a portfolio balance of at least $400,000. Currently, Fidelity charges 10.852% for a margin loan. This makes the cost of finance come to $360,357 over 10 years, assuming you have enough investment assets backing the margin loan to let the interest add to the margin loan each year without requiring a margin call for 10 years.
Borrowing $200,000 from a 401(k), if it is even allowable, is typically 1-2% higher than prime. As of February 25, 2025 prime was 7.5% which means the rate for a 401(k) loan would be at least 8.5% or greater. At 8.5% the cost of finance using a 401(k) comes to $53,765 over 5 years which is the time usually required to repay a loan from a 401(k). But again, loans from 401(k)s are limited and may not be accessible.
When using a participating whole life insurance loan with an interest rate of 4.853%, to access $200,000 to make this investment, the cost of finance ends up being $31,444 over 10 years as the continued growth of the policy cash value helps repay the loan. But the growth of the policy adds $301,945 to the cash value from the time the policy loan was initiated to the time it is fully repaid. This is $70,501 more than the cost of finance and the original principal of $200,000 on this policy loan.
This is why Infinite Banking produces its best results when coupled with participating whole life insurance. Each of the above methods of financing this investment has a cost of finance. The investment itself may have made money, lost money, or broken even over this 10-year window. Yet recovering the cost of finance to make this investment was best accomplished when using participating whole life insurance as can be seen from the above explanation.
Infinite Banking is a process not a product. You can bank with your savings. You can bank using traditional loans. You can even bank using your portfolio, and possibly even your 401(k) or IRA (if it is a self-directed IRA). But banking with your participating whole life insurance allows you to recover the cost of finance of whatever you are purchasing. The infinite part of Infinite Banking is the infinite number of ways you can apply this process to your finances to recover the cost of finance throughout your lifetime.
Now, if the above $200,000 investment earned 6% over the 10-year window mentioned above, the investment account balance would now equal $358,170.
If this investment was financed using:
Savings, then profits equal ($358,170 - $268,783) or $89,387
A Traditional loan, then profits equal ($358,170 - $257,141) or $101,029
A Margin loan then profits equal ($358,170 - $560,357) or -$202,187
401(k) or IRA loan, then profits equal ($358,170 - $253,765) or $104,405
Policy loan, then profits equal [($358,170 - $231,444) + $301,945] or $428,671
Infinite Banking is a great way to increase the return on everything you do financially. But the process must be replaced by a product. The process cannot be rushed. The process must be respected, which comes by gaining knowledge which displaces confusion and abolishes disinformation.
Once these simple rules are learned and followed, Infinite Banking becomes the best way to recover the cost of finance for individuals, families, business owners, farmers, and investors. Call 317-912-1000 for more free information and discover if you should become your own banker and start the Infinite Banking process with your finances.