Infinite Banking: Real Strategy, or a Scam?

Infinite banking is real, not a scam, but it is widely oversold. The mechanics are legitimate. The hype around them usually is not. It is a way to use a properly built whole life policy as your own pool of capital to borrow against. It can fit a narrow group of disciplined, financially stable people who need permanent insurance anyway. For most people, at least until their basics are handled, it is the wrong move.

Search infinite banking and you find two internet mobs shouting past each other. One says it is the secret the wealthy use to become their own bank and grow money tax-free. The other, including Dave Ramsey's camp, calls it an overpriced insurance product dressed up as a wealth strategy.[1] Both are partly right and both miss the truth. I am licensed to sell the policies this strategy uses, so I will hold myself to a higher bar and tell you plainly who this is wrong for.

Borrowing against a policy does not remove the loan, its interest, or lapse risk.

Common claim | What is real
"You pay yourself interest." | Loan interest is owed under the insurer's contract.
"Your money works twice." | Cash value can support a loan while policy values follow the contract.
"There is no risk." | Loan interest, low early value, and lapse can create loss or tax.
"It replaces investing." | It is a stable insurance-based capital tool, not a stock-return substitute.

What infinite banking actually is

Infinite banking is not a product you buy. It is a strategy. The idea was popularized by Nelson Nash in his book "Becoming Your Own Banker."[2] You use a properly structured, dividend-paying whole life policy from a mutual insurer as your own private pool of capital. It uses whole life, not an IUL, because it needs steady, predictable cash value. See IUL vs. whole life if you are weighing the two. Instead of parking savings in a bank and borrowing from a bank, you build cash value inside a policy and borrow against it. See mutual vs. stock insurers for why a mutual company is the usual choice.

The mechanic that makes it interesting is real and contractual. When you take a policy loan, you are not withdrawing your cash value.[3] The insurer lends you their money and uses your cash value as collateral. So your full balance keeps compounding as if you never touched it, while the borrowed money does something else. That is the legitimate core. It is the same engine behind the Rockefeller method.

Why smart people call it a scam

The critics are reacting to something real. The strategy has been relentlessly oversold. When agents promise free money, say you are paying yourself interest, or pitch it as a replacement for investing, those claims are false. Here is where the critics are right.

You pay yourself interest is a myth. Policy loan interest goes to the insurance carrier, not back into your pocket.[3] The early years are also expensive. A big share of your early premium goes to costs and commissions, so your cash value can start below what you paid in.[3] It usually takes years before the cash value passes your total payments. The strategy is slow and demanding. It takes years of steady, meaningful funding before you have enough cash value to do anything useful.

The scam is not the strategy. The scam is the pitch: free money, no tradeoffs, everyone should do it. When you hear that, you are being sold, not advised.[4] Run these questions to ask a financial advisor on anyone making those promises.

Why it's not actually a scam

The critics who call the concept a fraud are overshooting too. Here is what they get wrong.

The mechanics are contractually real. Whole life is a very old product. It comes from some of the most heavily regulated, conservatively run companies in the country.[5] Borrowing against your cash value while the full balance keeps compounding is not a trick. It is written into the contract.[3] Banks and companies genuinely do a version of this. Banks hold large amounts of cash-value life insurance. It is known as bank-owned life insurance, or BOLI. Regulators track it closely.[6] The claim that nobody real uses this is just wrong.

It is a safe-money bucket, not a failed investment. Comparing whole life growth to the stock market compares the wrong things. The fair comparison is a savings account or a bond: a stable, tax-advantaged base that does not crash when the market does.[7] Historically, that kind of return sits closer to bond yields than to stock returns.[8] For the real cash cousin, see where to keep cash. So both mobs are wrong. It is not free money, and it is not a scam.

Who it's for, and who should run away

This is the part the hype videos skip. Infinite banking can fit if, and only if, most of these are true for you.

It might fit if you:

Have already handled the basics: no high-interest debt, a real emergency fund, and you capture your full employer 401(k) match.

Can comfortably commit meaningful premium for 10 years or more, without straining your budget. Some advisors suggest around 10 percent of income. That is only a rough gauge. The right number is personal.

Have a genuine need for permanent life insurance anyway.

Want a stable, tax-advantaged place to warehouse capital you will deploy into real opportunities, like a business or real estate.

Run away if you:

Are carrying credit card debt. Paying that off is a guaranteed high return that beats this every time. Do it first.

Do not have an emergency fund yet. This is not your emergency fund. The money is not meaningfully accessible for years.

Cannot be certain you will fund it for the long haul. An underfunded or abandoned policy can lose real money, especially early.[3]

Are told it will beat investing or make you rich. That is the oversell.[4] Walk away from whoever is saying it.

Two things that separate a real strategy from a sales pitch

Fit check | Ready | Not ready
Costly debt. | High-rate balances are controlled. | Credit-card interest still compounds.
Emergency cash. | Near-term needs have a liquid buffer. | The policy is being sold as the buffer.
Premium capacity. | The payment fits for many years. | One weak year could force a lapse.
Insurance need. | Permanent coverage has a clear job. | The policy exists only for the banking story.

If you do explore this, protect yourself the same way I would want my own family protected.

First, ask for the internal rate of return at years 5, 10, 20, and 30, in writing, from more than one insurer. Real numbers, not a story. Second, understand the MEC rule. A properly designed policy is funded close to a federal line called the seven-pay test. You fund it as high as you can, but you do not cross that line.[9] Cross it and the policy becomes a modified endowment contract. Then loans and withdrawals can be taxed, and the tax treatment the whole strategy depends on is gone.[9][10] If the person selling cannot explain this clearly, that is your answer. Funding design also connects to whole life payment schedules, so it is worth learning both.

The bottom line

Is infinite banking real? Yes. The mechanics are legitimate, the tax treatment is real, and companies genuinely use versions of it.[6] Is it a scam? No, but it is the most oversold strategy in personal finance, and the marketing around it earns the skepticism it gets. It is a powerful tool for a narrow group of disciplined, financially stable people who need permanent insurance and want a private capital base. It is the wrong move for most everyone else, at least until the foundation is built.

Common questions

Is infinite banking legal?

Yes. It uses a standard, regulated whole life insurance policy and its contractual loan feature.[3] There is nothing secret or illegal about borrowing against your own cash value. The tax rules come from federal law, and staying inside the seven-pay limit keeps the tax treatment intact.[9] The problem is not legality. It is the overselling.

Does infinite banking really work?

The mechanics work: your full balance can keep compounding while you borrow against it.[3] But it works slowly, and only if you fund it well for years and actually need the insurance.[5] It is a stable, tax-advantaged capital base, closer to a bond than to the stock market.[8] It does not beat investing, and treating it like an investment is the mistake.

Is infinite banking a good idea?

It is a good idea for a narrow group: people with no high-interest debt, a real emergency fund, a genuine need for permanent insurance, and the cash flow to fund it for a decade or more.[3] For most people, paying off debt and investing in low-cost funds is simpler and better. Match the tool to your actual situation.

Who uses infinite banking?

Disciplined savers who want a stable place to store and borrow capital, business owners, and some real estate investors. On a much larger scale, banks and companies hold cash-value life insurance for similar reasons. Regulators call it BOLI.[6] The wealthy use versions of it, but so can regular people who fit the profile and keep the policy.

This is general education, not tax, legal, or investment advice. Any policy guarantee rests on the issuing company's ability to pay claims. Cash-value and return figures vary by policy and are not promises. I am a licensed insurance and financial professional, and I can be paid when someone buys a policy. I say so because knowing how your advisor is paid is part of judging any advice, including mine. Review your own situation with qualified professionals before acting.

Sources

Ramsey Solutions, "What Is Whole Life Insurance?". Accessed July 27, 2026.

Infinite Banking Institute, R. Nelson Nash and "Becoming Your Own Banker". Accessed July 27, 2026.

National Association of Insurance Commissioners, "Life Insurance Buyer's Guide". Accessed July 27, 2026.

Federal Trade Commission, "Investment Scams". Accessed July 27, 2026.

National Association of Insurance Commissioners, "Life Insurance". Accessed July 27, 2026.

Federal Deposit Insurance Corporation, "Interagency Statement on the Purchase and Risk Management of Life Insurance" (FIL-127-2004). Accessed July 27, 2026.

California Department of Insurance, "Life Insurance". Accessed July 27, 2026.

Federal Reserve Bank of St. Louis (FRED), Moody's Seasoned Aaa Corporate Bond Yield. Accessed July 27, 2026.

Legal Information Institute, 26 U.S. Code § 7702A (modified endowment contract defined). Accessed July 27, 2026.

Legal Information Institute, 26 U.S. Code § 72 (annuities; certain proceeds). Accessed July 27, 2026.