People love a hack. And the term “infinite banking” sounds so cool. Be your own bank! Stick it to the big banks!

But unfortunately, it’s not true. It’s a scam pushed by insurance salesmen. Like all good scams, there’s a hint of truth to it. The idea behind “infinite banking” is you give your money to an insurance company who invests it for you. Then you take out a loan against that “cash value”. You can use the loan while the cash value grows uninterrupted. That’s essentially the concept of “leverage”. Using loans to let money grow faster.

But the devil is in the details. If you’ve heard of this, I can virtually guarantee it was from someone trying to sell you insurance, and I can further virtually guarantee that insurance salesperson left out the horrific details. Notably the fees. The fees vary, but they can include things like:

• Premium expense charge (a percent of any money you put in)
• Monthly policy fee (a flat monthly fee)
• Per unit charge (another fee based on how big the death benefit is. By law, the death benefit must be big enough to be treated as life insurance)
• Cost of insurance (actually paying for required life insurance associated with these policies)

Add all those up, and the amount of money in your cash value is dramatically less than what you put in. You can borrow SOME of that back (at yet another fee). But it literally makes no sense to burn all this money on fees just to “borrow” your own money.

I bought one such policy and did a detailed analysis on it. By my math, 15 years into the policy I could have borrowed against $42,000. But if I had just saved and invested that money, I would actually HAVE $202,000. You could literally SPEND all $42,000 (and never pay it back) and still be $160,000 ahead!

Don’t fall for the slick tactics of life insurance salesmen. Keep it simple. If you need life insurance, buy term and invest the rest.

As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.

-Jeremy