Blog 70 – Key Questions About The Infinite Banking Concept

1) What is the Infinite Banking Concept?

The Infinite Banking Concept (IBC) is an exceptional cash management tool for your personal economy or for your business that gives you financial independence by recapturing interest payments that otherwise would flow to outsiders.

2) How do you implement this concept?

The Infinite Banking Concept is implemented through a specially-designed high cash value dividend-paying whole life insurance policy from a mutual company. It is an excellent place to store your money and it serves as both, your emergency fund and your opportunity fund.

3) What are the working parts of a whole life insurance policy?

Every whole life insurance policy has two components: cash value and death benefit and in IBC, our purpose is to maximize the cash value. The death benefit is represented by the base whole life policy. The cash value portion is taken care of by the Paid-Up Additions (PUA) rider. Paid-up additions are mini paid-up whole life policies that attach to your base whole life policy and they themselves generate interest and dividends. They have a death benefit and a cash value and as its name implies, they require just one single premium payment and they are forever paid-up. In other words, you keep the death benefit of the paid-up additions and its cash value without ever paying any additional premiums.

4) What is the best design for an IBC policy?

Let’s see how we design an IBC policy: once we know the original contribution to the policy, including the modal premium, (annually or monthly), and the age, gender, and the underwriting rating of the insured, we determine the minimum amount of death benefit necessary to make sure that the policy does not violate the Modified Endowment Contract (MEC) regulations.

5) Design (continues…)

In order to minimize the cost of the death benefit necessary to satisfy the MEC regulations, we use a term insurance rider that helps obtain part of the necessary death benefit at a lower cost than having the necessary total death benefit depend only on the base whole life policy. The term insurance rider is a blended One-Year Term-PUA rider that uses dividends and PUAs to convert the One-Year Term to whole life insurance. By reducing the cost of the death benefit necessary to avoid a MEC, more of the prospective client’s contribution would go to the PUAs to generate cash value. Be aware of the 10/90 ratio discussed in the internet, because there are design restrictions inherent to some life insurance companies.

6) What does it take to capitalize the policy?

The difference between the cumulative premiums paid and the cash values during the first few years of the policy is due to the initial cost of setting up the death benefit and the compensation to the financial professional who designs, sells and will service the policy for years to come. This is what Nelson Nash calls “the capitalization phase of the policy” and it may take from five to seven years. To  be successful in implementing an IBC policy, you should be able to show patience, discipline, long-range planning and an “abundance” mindset, not a “scarcity” mindset. The rewards, once you complete the capitalization phase of the policy, are worth all the efforts since the cash values start increasing at an increasing rate and the policy becomes more cash  value efficient every year, meaning that the ratio of the increase in the cash value from the previous year to that year annual contribution keeps increasing every year.

7) When I pass away, does my beneficiary get both, the cash value and the death benefit?

The cash value in any given year is the portion of the death benefit that you can have access to in the form of policy loans. It is your equity in the death benefit. When you pass away, your beneficiary will receive the death benefit income tax free. The death benefit, by definition, already includes the cash value in your policy.

8) How do I take policy loans?

When you take a policy loan, the money comes not from your cash value but from the general account of the life insurance company and it is collateralized by your cash value. Meanwhile, the cash value remains in your policy earning interest and dividends. In fact, the cash value is doing double duty for you: it allows you to purchase whatever your loan was for and it keeps earning interest and dividends for you.  As you repay a policy loan by some amount, that same amount of cash value that is collateralizing your loan is released, and it is available for your next loan.

9) How do banks make money?

Banks use the power of leverage and the power of Other People’s Money (OPM). If a bank pays 1% a year to depositors and collect 7% a year from borrowers, although the spread is 6% (7% – 1%), the actual rate of return or profit is 600% and remember, the money the bank is lending is not its money, but the money of the depositors. Can you do the same thing through an IBC policy? Absolutely! You take a policy loan (OPM since it is the insurance company’s money) at 6% a year and invest in an asset that generates more than 6% a year, let’s say 14%. Your rate of return or profit is 133%. Remember, you are wealthy, not necessarily because you have a nice net worth, but because you have assets that generate cash flows in a consistent and reliable manner that are many times larger than your expenses.

10)What is direct recognition and non-direct recognition?

A direct recognition insurer adjust the dividend rate on the cash value collateralizing a policy loan. That adjustment may be positive or negative. A non-direct recognition insurer does not adjust the dividends paid on a policy when there is an outstanding policy loan. The truth is that one method is not necessarily superior to the other. What is really important to you as a consumer is what the insurance policy will provide you in cash values at any points in time that are of relevance to you, and this is more specific to the internal design of your policy than the fact that the insurance company is direct or non-direct recognition.

11)What is an illustration?

It is important to remember that an illustration provides a snapshot or projected future policy performance. Actual performance may be more or less favorable than the original illustration, depending on future interest rates and future declared dividends.

Remember, we are always available to advise you on the best way to utilize your IBC policy. 

If you would like to learn how you can grow a substantial amount of cash that you have access to at any time without penalties, is unrelated to the stock market, and will generate income that is not included in your tax return, visit our website at  or feel free to email us your questions at or call us toll-free at 1-844-443-8422.

Isis B. Palicio, LUTCF, MBA
Pedro A. Palicio, MBA, Ph.D.
Infinite Banking Concepts® Authorized Practitioners

We are experts in designing high cash value dividend-paying whole life policies.

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