How Cash Value Life Insurance Like PWL and IUL Work to Build Wealth
Unlocking the Power of Infinite Banking: How Cash Value Life Insurance Works
Imagine having your own personal bank. A bank where you’re the depositor, the borrower, and even the lender. Sounds too good to be true, right? Well, this concept is very real and incredibly powerful. It’s called Infinite Banking, and it’s made possible by something called a cash value life insurance policy.
Now, don’t worry—if you’re not familiar with financial jargon, I’m going to break it down for you in simple terms.
What is a Cash Value Life Insurance Policy?
First things first, a cash value life insurance policy is a type of life insurance that does two things at once:
- It provides a
death benefit (a payout to your loved ones when you pass away).
- It builds cash value over time (think of it as a savings account that grows tax-deferred, compounding over time).
When you pay your premiums (your regular payments to keep the policy active), part of that money goes toward the death benefit, and part of it goes into your cash value account. Over time, this cash value grows, compounding tax free (which makes it grow exponentially faster over time), and here’s the real magic: you can access it while you’re still alive (any time you like, for whatever reason you like).
How Does Infinite Banking Work?
Infinite Banking uses the cash value in your life insurance policy to give you control of your money. Instead of relying on traditional banks to borrow money, you can use your policy’s cash value as a source of funds.
Here’s how it works:
- You Pay Premiums: Each time you make a payment into your life insurance policy, you’re funding both the death benefit and your cash value account. Over time, the cash value grows. Think of this as building up your own private reserve of money.
- You Borrow from Yourself: Once your cash value has grown to a decent amount, you can take a
policy loan against it. Here’s the cool part: you’re not withdrawing money; you’re borrowing it. That means your cash value keeps growing as if you never touched it.
- You Set the Terms: Unlike a bank loan, there’s no strict repayment schedule. You’re in control. You can repay the loan on your own timeline—or not at all. The loan is simply deducted from your death benefit if it’s unpaid when you pass away.
- You Earn Interest Too: While you’re borrowing from your policy, the remaining cash value in the policy continues to grow. Using the right kind of loan, you’re actually earning interest on the money you’re borrowing too!
Why Use Infinite Banking?
Infinite Banking allows you to take control of your financial life without having to depend on traditional banks. Here are some key benefits:
- Access to Your Money Anytime: Need funds for a big expense, like buying a car, starting a business, or even paying off debt? You can borrow from your policy instead of taking out a high-interest loan.
- Tax Advantages: The cash value grows tax-free, and when you borrow from it, the loan isn’t considered taxable income.
- Becoming Your Own Banker: Instead of paying interest to a bank or lender, you’re essentially paying yourself instead. It’s a way to keep money within your own financial system. Using the money for business purposes? Then the interest is tax deductible.
- Building Wealth Long-Term: Over time, the cash value grows, and the policy can provide a steady source of tax-free income in retirement or for other future goals. Many policies also come with an option for guaranteed lifetime income.
An Example to Make It Real
Let’s say Sarah owns a whole life insurance policy. Over 10 years, she’s built up $50,000 in cash value. Now she wants to buy a new car for $30,000.
Instead of going to a bank and taking out a loan (and paying interest to them), Sarah borrows $30,000 from her policy’s cash value. Her insurance company gives her the money, using her cash value as collateral. Meanwhile, her full $50,000 cash value continues to grow as if she never touched it.
Sarah sets up a plan to pay herself back over 5 years. She charges herself interest, just like a bank would, but here’s the difference: that interest goes back into her own policy, not into the pockets of a bank. And if Sarah was self employed or a business owner and the business is paying back the loan and the interest, then that vehicle and the interest just became a tax deductible expense to her business.
Why Isn’t Everyone Doing This?
If Infinite Banking is so great, why isn’t everyone using it? Well, it’s not something most people are taught in school. Plus, setting it up requires a specially designed whole life insurance policy from a company that pays dividends or a correctly structured IUL that will allow flexible access to your funds prior to retirement. Not all policies work for Infinite Banking, so it’s important to work with someone who understands the concept.
These types of policies have different licensing and education requirements than financial planning. Also the commissions are lower than earned by financial planners and investment brokers for assets under management, so there isn't any financial incentive for them to incorporate infinite banking into their portfolios.
Is Infinite Banking Right for You?
Infinite Banking isn’t a one-size-fits-all solution. It works best for people who have the discipline to pay themselves back and who are looking for long-term financial growth and control. If that sounds like you, it could be a game-changer.
Final Thoughts
At its core, Infinite Banking is about taking back control of your money. It’s about using a financial tool that grows your wealth while giving you flexibility and freedom. Cash value life insurance is the engine that powers this system, and when used wisely, it can transform the way you think about money.
So, are you ready to become your own bank? It might just be the smartest financial move you ever make.
Schedule a call today for a no-obligation discussion about how infinite banking could help you get financially ahead.
