Unlock Financial Freedom with Your Policy's Cash Value
Infinite Banking Concept (IBC) Inputs
Enter your policy details and desired loan parameters to see how IBC can work for you.
The total cash value available in your policy.
Typically 80-90% of cash value can be borrowed.
Enter a specific amount if you don't want to use a percentage.
Estimated annual growth rate of your policy's cash value (%).
The interest rate charged on the policy loan (%).
Your planned annual repayment rate towards the loan (%).
The number of years you plan to repay the loan.
IBC Simulation Results
0
Policy Loan Amount
0
Projected Policy Value (End of Term)
0
Total Loan Repaid
Formula Explanation: This calculator simulates the growth of your policy's cash value while accounting for a policy loan. It calculates the loan amount based on your inputs, projects the policy's cash value growth, and estimates the total amount repaid over your specified term. The primary result shows the projected net cash value after loan repayment.
Policy Value vs. Loan Balance Over Time
IBC Simulation Table
Year
Beginning Policy Value
Policy Growth
Ending Policy Value
Loan Balance
Total Repaid
What is the Infinite Banking Concept?
The Infinite Banking Concept (IBC), often referred to as becoming your own banker, is a financial strategy that leverages a specially designed high-cash-value life insurance policy (typically a participating whole life policy) to create a personal, accessible source of capital. Instead of relying on traditional financial institutions for loans, individuals using IBC borrow against the cash value of their own policy. This allows them to continue earning dividends and interest on the full cash value, even the portion that has been borrowed, while having control over repayment terms and interest rates.
Who Should Use It?
The IBC strategy is best suited for individuals who:
Have a long-term financial perspective.
Are looking for a way to finance major purchases or investments without disrupting their long-term wealth-building goals.
Understand and value the guarantees and long-term growth potential of permanent life insurance.
Are disciplined savers and capable of managing their own loan repayments.
Seek to maintain control over their capital and avoid traditional lending requirements.
Common Misconceptions
Several myths surround the Infinite Banking Concept:
It's a get-rich-quick scheme: IBC is a long-term strategy requiring patience and discipline.
You can access all your cash value immediately: Policies have surrender charges and loan provisions that dictate access.
It replaces all other financial tools: IBC is a powerful tool, but it complements, rather than replaces, other investments and savings vehicles.
It's just about borrowing money: The core is building a substantial, growing cash value that can be used strategically.
It's only for the wealthy: While it requires consistent premium payments, the principles can be applied by those committed to long-term financial planning.
Infinite Banking Concept Formula and Mathematical Explanation
The core of the Infinite Banking Concept calculator involves understanding how policy loans interact with the cash value growth of a permanent life insurance policy. While the exact calculations are complex and proprietary to each insurance company, the fundamental principles can be modeled.
Key Variables and Their Meanings:
Variable
Meaning
Unit
Typical Range
CV0
Initial Policy Cash Value
Currency (e.g., USD)
$1,000 – $1,000,000+
L%
Loan Percentage of Cash Value
Percentage (%)
80% – 90%
LM
Manual Loan Amount
Currency (e.g., USD)
$0 – CV0 * L%
RCV
Annual Policy Cash Value Growth Rate (Internal)
Percentage (%)
3% – 6% (often includes dividends)
RL
Annual Loan Interest Rate
Percentage (%)
4% – 8%
RP
Annual Loan Repayment Rate
Percentage (%)
5% – 15% (or fixed payment)
T
Loan Repayment Term
Years
1 – 20
Calculation Logic (Simplified Model):
Determine Loan Amount (L):
If `L_M` > 0, then L = `L_M`.
Else, L = `CV_0` * (`L%` / 100).
Ensure L does not exceed available cash value.
Calculate Annual Policy Growth: For each year `y` from 1 to `T`:
Policy Value Before Loan Interest: `CV_y-1` * (1 + `R_CV` / 100)
Policy Value After Loan Interest: `CV_y-1` * (1 + `R_CV` / 100) – `LoanInterestAccrued`
Note: In true IBC, the policy continues to grow on the full cash value, including the borrowed portion. This simplified model subtracts loan interest for illustrative purposes, but the actual policy growth mechanism is more nuanced.
Calculate Annual Repayment: For each year `y` from 1 to `T`:
Calculate the annual payment based on the loan amount L, interest rate `R_L`, and term T using an amortization formula (or a simplified percentage of the loan amount if `R_P` is used directly).
Total Repaid = Sum of all annual payments.
Loan Balance decreases with each payment.
Final Policy Value (CVT): The projected cash value at the end of the term `T`.
Net Result: `CV_T` – (`Final Loan Balance`).
The infinite banking concept calculator aims to provide a clear projection of these interactions, helping users visualize the potential outcomes of using their policy as a banking tool.
Practical Examples (Real-World Use Cases)
Example 1: Financing a Home Improvement Project
Sarah has a whole life insurance policy with a current cash value of $75,000. She wants to undertake a $30,000 home renovation. She plans to borrow 80% of her cash value and repay the loan over 5 years. Her policy's internal growth rate is estimated at 4%, and the policy loan interest rate is 5%. She plans to repay the loan aggressively, aiming to pay back 15% of the initial loan amount annually.
Inputs:
Current Policy Cash Value: $75,000
Loan Percentage of Cash Value: 80%
Loan Amount (Manual): $0 (using percentage)
Annual Policy Cash Value Growth Rate: 4%
Annual Loan Interest Rate: 5%
Annual Loan Repayment Rate: 15%
Loan Repayment Term: 5 Years
Calculated Results:
Policy Loan Amount: $60,000
Total Loan Repaid: ~$34,500 (approximate, depends on amortization)
Projected Policy Value (End of Term): ~$91,500 (estimated)
Primary Result (Net Value): ~$57,000
Financial Interpretation:
Sarah successfully financed her $30,000 renovation using her policy loan. Over 5 years, she repaid approximately $34,500 (including interest). Her policy's cash value grew to an estimated $91,500. After repaying the loan, her net cash value is projected to be around $57,000. Crucially, her policy's death benefit remained intact, and she continued to earn potential dividends on the full $75,000 (and subsequent growth), demonstrating the power of IBC for liquidity without sacrificing long-term growth.
Example 2: Funding a Business Opportunity
John has a policy with $150,000 in cash value. A business opportunity arises requiring $100,000. He decides to use his policy for this. His policy's internal growth is 4.5%, and the loan rate is 6%. He plans to repay the loan over 7 years, targeting 12% repayment annually.
Inputs:
Current Policy Cash Value: $150,000
Loan Percentage of Cash Value: 0% (using manual amount)
Loan Amount (Manual): $100,000
Annual Policy Cash Value Growth Rate: 4.5%
Annual Loan Interest Rate: 6%
Annual Loan Repayment Rate: 12%
Loan Repayment Term: 7 Years
Calculated Results:
Policy Loan Amount: $100,000
Total Loan Repaid: ~$118,000 (approximate)
Projected Policy Value (End of Term): ~$195,000 (estimated)
Primary Result (Net Value): ~$77,000
Financial Interpretation:
John utilized $100,000 from his policy to seize a business opportunity. He diligently repaid the loan over 7 years, totaling approximately $118,000. His policy's cash value grew significantly, reaching an estimated $195,000. Even after loan repayment, his net cash value stands at roughly $77,000, demonstrating how IBC can provide substantial capital for investments while the underlying asset continues to grow and potentially pay dividends.
How to Use This Infinite Banking Concept Calculator
Our Infinite Banking Concept calculator is designed to be intuitive and provide clear insights into how this strategy can work for you. Follow these steps:
Enter Current Policy Cash Value: Input the total cash value available in your high-cash-value life insurance policy.
Specify Loan Amount: You can either enter a specific loan amount or set a loan percentage (e.g., 80%) of your cash value. The calculator will use the manual amount if provided, otherwise, it calculates based on the percentage.
Input Growth and Interest Rates: Enter the estimated annual growth rate of your policy's cash value (this often includes dividends) and the interest rate charged on policy loans.
Define Repayment Plan: Input your planned annual loan repayment rate (as a percentage of the initial loan) and the number of years you intend to repay the loan.
Calculate: Click the "Calculate IBC" button.
Reading the Results:
Primary Result: This is your projected net cash value at the end of the repayment term, after the loan has been fully repaid. It represents the growth of your capital.
Policy Loan Amount: The initial amount borrowed from your policy.
Projected Policy Value (End of Term): The estimated total cash value of your policy after the repayment period, assuming consistent growth.
Total Loan Repaid: The sum of all payments made towards the loan, including principal and interest.
Simulation Table & Chart: These provide a year-by-year breakdown of how your policy value grows and how the loan balance decreases over the term.
Decision-Making Guidance:
Use the results to understand the potential impact of policy loans on your cash value growth and overall financial strategy. Compare different repayment scenarios or loan amounts to see how they affect your net results. Remember, this calculator provides an estimate; actual results depend on the specific policy contract and the performance of the insurance company.
Key Factors That Affect Infinite Banking Concept Results
Several critical factors influence the outcomes of implementing the Infinite Banking Concept. Understanding these is crucial for realistic expectations and effective strategy implementation:
Policy Design: The type of policy (whole life, participating) and its design (premium allocation between insurance and cash value) are paramount. Policies designed for maximum cash value growth are essential for IBC.
Insurance Company Performance: The actual dividend scale and interest rate credited by the insurance company directly impact cash value growth. Strong, stable companies are preferred.
Loan Interest Rate: A higher loan interest rate increases the cost of borrowing, reducing the net benefit and potentially slowing down loan repayment.
Cash Value Growth Rate: A higher internal growth rate (including dividends) accelerates the compounding effect, enhancing the policy's value even while a loan is outstanding.
Repayment Discipline: Consistent and timely repayment of policy loans is vital. Failing to repay can lead to loan interest capitalizing, potentially eroding cash value and even causing the policy to lapse if the loan balance exceeds a certain percentage of the cash value.
Loan Amount and Term: Borrowing too much relative to the cash value, or extending the repayment term excessively, can strain the policy's growth and increase the total interest paid.
Inflation: While not directly calculated, inflation erodes the purchasing power of money. IBC can provide a hedge against inflation by offering a stable source of capital that can be accessed without being subject to market volatility.
Fees and Expenses: Policy fees, administrative charges, and loan origination fees (if any) can reduce the net returns. Understanding all associated costs is important.
Tax Implications: Cash value growth within a life insurance policy typically grows tax-deferred. Policy loans are generally received income-tax-free. However, specific tax rules can apply, especially if the policy lapses or is surrendered with an outstanding loan. Consulting a tax professional is advised.
Frequently Asked Questions (FAQ)
Q1: Is the Infinite Banking Concept suitable for everyone?
A1: No. It requires a long-term perspective, discipline, and a suitable permanent life insurance policy. It's not a replacement for emergency funds or short-term savings goals.
Q2: Can I lose money with the Infinite Banking Concept?
A2: While the cash value growth is typically guaranteed to some extent, and dividends are not guaranteed, the primary risk comes from policy lapse due to insufficient repayment of loans. If the loan balance plus accrued interest exceeds the cash value, the policy can lapse, potentially triggering tax consequences.
Q3: How does the policy continue to grow if I borrow from it?
A3: The insurance company typically credits growth (including potential dividends) on the *full* cash value, not just the portion you haven't borrowed. However, the loan interest you pay is a cost. The net effect depends on the comparison between the policy's growth rate and the loan interest rate.
Q4: What happens if I can't repay the policy loan?
A4: If the loan balance (including accrued interest) grows large enough, it can reduce or eliminate the cash value. If the loan exceeds the cash value, the policy may lapse, potentially resulting in taxable income.
Q5: Is a policy loan considered taxable income?
A5: Generally, no. Policy loans are typically received income-tax-free. However, if the policy lapses or is surrendered with an outstanding loan, the loan amount may be considered taxable income to the extent that the cash value exceeds the premiums paid.
Q6: How is the loan repayment calculated?
A6: Repayment can be structured in various ways. Some policies allow flexible repayment, while others might require minimum payments based on loan interest plus a principal reduction. This calculator uses a simplified annual repayment rate percentage.
Q7: What is the difference between cash value growth and loan interest?
A7: Cash value growth is the increase in your policy's value, often including guaranteed interest and non-guaranteed dividends. Loan interest is the cost you pay to borrow money from your policy's cash value.
Q8: Can I use IBC for retirement planning?
A8: Yes, many use IBC as a long-term strategy to supplement retirement income. By strategically borrowing and repaying, individuals can access funds for living expenses while allowing the remaining cash value to continue growing tax-deferred.