Expert Verified by: David Chen, CFA | Financial Strategy Specialist
Last Updated: October 2023
Take control of your financial destiny with our Infinite Banking Concept Calculator. This professional-grade tool helps you simulate wealth accumulation within a high-cash-value life insurance policy, allowing you to visualize how you can “become your own banker” by optimizing premiums, dividends, and time.
Infinite Banking Concept Calculator
Infinite Banking Concept Calculator Formula
$$FV = P(1+r)^n + C \times \frac{(1+r)^n – 1}{r}$$
Where: FV = Future Value, P = Principal, C = Annual Contribution, r = Interest Rate, n = Years.
Formula Source: Investopedia – Infinite Banking | Nelson Nash Institute
Variables Explained:
- Initial Cash Value: The starting balance in your policy’s cash account.
- Annual Contribution: The yearly premium or additional paid-up additions (PUA) you plan to deposit.
- Projected Dividend/Rate: The estimated annual growth rate provided by the mutual insurance company.
- Number of Years: The duration you intend to let the capital compound or the policy maturity term.
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What is the Infinite Banking Concept?
The Infinite Banking Concept (IBC) is a financial strategy popularized by R. Nelson Nash. It involves using a dividend-paying whole life insurance policy as a personal cash flow management vehicle. By building significant cash value, you can take out policy loans to finance major purchases, effectively “becoming your own banker.”
The goal is to stop relying on traditional commercial banks and instead redirect interest payments back into your own financial ecosystem, allowing for uninterrupted compounding of wealth even while you use the money for other investments.
How to Calculate IBC Growth (Example)
- Determine your Initial Cash Value (e.g., $10,000).
- Identify your Annual Premium (e.g., $5,000).
- Input the Guaranteed Rate + Dividend (e.g., 5%).
- Select the Time Horizon (e.g., 10 years).
- The calculator will determine the total Future Value using the sinking fund and compound growth formulas.
Frequently Asked Questions (FAQ)
Is the dividend rate guaranteed? No, dividends are not guaranteed, but many mutual companies have paid them for over 100 consecutive years.
Can I borrow 100% of my cash value? Usually, you can borrow up to 90-95% of the available cash value at any time.
Does the cash value still grow if I take a loan? Yes! One of the key benefits of IBC is that your full cash value continues to compound even if you have an outstanding loan against it.
Is this strategy tax-free? Generally, cash value growth and policy loans are tax-free as long as the policy remains in force and is not a Modified Endowment Contract (MEC).