Want to use your Infinite Banking policy, but wish you understand the nuts and bolts of how Infinite Banking loan interest works first? Today, we’re answering a question from our wonderful community of listeners:

https://www.youtube.com/watch?v=iFSgJlrjL4U

What’s the policy loan if I wanted to borrow 1K? Are there any interest rates?—Riley Nelson

So if you want to learn exactly how interest works on life insurance policy loans… tune in now!

Table of contentsWhat is IBC?The Power of LeverageDo Life Insurance Companies Charge Interest on Policy Loans?Why Compounding Interest Matters Fixed vs. Variable InterestThe Nuances of Variable Interest RatesHow Companies Charge InterestBook A Strategy Call

What is IBC?

A friend of ours, James Neathery, often says, “If you understand the concepts, the details don’t matter, and if you don’t understand the concepts, then the details don’t matter.” 

Ultimately, what he’s saying is that you must ultimately understand the big picture of how and why IBC (Infinite Banking Concept) does what it does. Without that conceptual understanding, the rest doesn’t matter. And so, we’re first going to look at infinite banking or privatized banking on a conceptual level, so that we can get into the weeds.

Infinite banking is an alternative banking position. As we know, banks pay you interest, and they charge you interest. Life insurance companies work the same way. If you have a whole life insurance policy, the insurance carrier will pay you interest and charge you interest. 

The power of “banking” with a life insurance company is in the rates, the leverage, and the level of control. To access the cash value of your life insurance, you can take a policy loan. The benefits of a private system is that you do not need permission or approval. 

The Power of Leverage

The reason that IBC works in a way that regular banking does not is because of the power of leverage. The rate at which insurance companies pay interest is often far greater than what the banks offer, as well as dividends. This allows for greater accumulation. Then, you can leverage that money to make it do more jobs. 

This could mean taking a policy loan at 5% and investing it in real estate at an even better rate. You can then put the monthly cash flow towards the loan repayment and give your money a better rate of return in the long run. And because you’ve leveraged the insurance company’s money (using your cash value as collateral), your policy continues to accumulate interest at its maximum compounding potential. 

The benefit is that you’re not JUST putting your money in a vehicle with better safety, liquidity and growth. You also have an ASSET that allows you to accumulate more assets with uninterrupted compound interest. 

IBC is not magic. However, it’s a strategy you can use to make your banking more efficient and work more in your favor. 

Do Life Insurance Companies Charge Interest on Policy Loans?

Yes, the life insurance companies DO charge you interest. This is because you’re borrowing from the insurance company instead of taking money directly from your cash value. This means that your entire cash value can continue to compound uninterrupted. 

Instead, your cash value acts as collateral. This means that your death benefit will be reduced until the loan is paid back. You aren’t borrowing your own money and paying yourself interest, which is a common misconception. 

Why Compounding Interest Matters 

You might wonder WHY you would want to pay interest at all, when you could just withdraw from a regular savings account. The answer is in the compounding. When you withdraw money from a bank account, there’s less money to earn interest on. As we all know, interest accumulates better on larger sums of money—1% of $1,000 is only ten dollars. On the other hand, 1% of $10,000 is a hundred dollars. At the higher balance, not only are you earning more money—you’re also earning money on TH...