Recently, our readers discussed what they like and dislike about the infinite banking concept (“IBC”). The Infinite Banking Concept is an idea that uses whole life insurance as a savings accumulation vehicle. It was conceptualized by former insurance salesperson Nelson Nash in the 1980′s, and made its way into industry discussion after being introduced in Nash’s book, Becoming Your Own Banker.
More generally, the concept involves:
1) Over-funding (with after-tax money) a high-cash value whole life insurance policy from a mutual life insurance company.
2) Accumulating cash value over a period of several years with the policy’s interest rate.
3) Taking tax-free loans against the policy’s cash value to invest into other vehicles.
Loans from life insurance policies are not reported to credit bureaus, so this practice can be a boon to credit scores (particularly with debt to income ratios). To follow the creed of the IBC, an individual must view permanent life insurance as an asset or a savings reserve in his or her personal life.
Little-known facts about the IBC were illuminated within the forum. Details and possible pitfalls were discussed by forum members, as well as whether the IBC is too good to be true. Questions were also raised about how the IBC works and how it would apply in various circumstances
Not familiar with the IBC? Want to know more? Get in on the discussion.