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Infinite Banking: What Is It and Should You Use It?

If you spend some time browsing topics on investing, insurance, business, and banking, you've likely come across infinite banking. For many, it's likely a new concept that is somewhat confusing. How can there be infinite banking?

We've taken this concept and broken it down into a detailed guide to see if it works for you and how you could benefit from implementing an infinite banking strategy.

The Basics – Understanding Infinite Banking

Whole Life Insurance Basics

Infinite banking falls under a whole life insurance policy. Before we dive any further, we first need to understand this type of life insurance.

Whole life insurance is a type of coverage you purchase for personal insurance. It's a popular type of permanent life insurance that lasts for the policyholder's entire lifespan. Upon the policyholder's death, the beneficiary receives the death benefit, as long as premium payments were made. A central component of whole life insurance that makes it a popular option is the added savings component called the cash value, that you can build up over time and borrow against.

The cash value works in a few ways. One way is that the policyholder can make more premium payments than scheduled. The additional payments would go to the cash value.

On the other hand, the policyholder can reinvest the dividends attached to the insurance policy. These dividends are similar to traditional investment dividends, in which they are a portion of the insurance company's profit that the policyholder can invest.

Infinite Banking with Whole Life Insurance

So, how does this turn into infinite banking? Basically, if you have enough money in your whole life insurance policy, rather than applying for a loan at the bank, you can borrow against your policy. Your policy, ultimately, turns into a personal bank.

Now, it won't work to borrow against the policy when you first get it. It takes a few years to grow, as the first bit of payments covers the cost of the insurance and any additional fees. Once you have some cash value to your policy, then you can borrow against it (take out a loan on your policy).

Why You Should Consider Infinite Banking

Although infinite banking isn't for everyone, there are some upsides to it that make it appealing. To start, since you're borrowing from your policy and not applying for a loan at the bank, you can access the money for basically anything. You don't have to meet certain criteria (besides having cash value to your policy) and risk getting declined.

Whole life insurance has a growth aspect to it. Your policy gains interest each year you have it. So, the longer you have your policy, the more it will grow in wealth. Not only that, but the growth of the policy is also considered as equity.

In the end, the main perk of infinite banking is that you have total control over virtually everything. Any reason you have and the decisions you make for borrowing against your policy is yours alone. Whether you're taking the money for yourself or providing a loan to a friend, it doesn't matter.

Consider infinite banking as a strategy to grow your wealth.

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