Infinite banking, which means taking over the banking function in your own life, doesn't require a life insurance policy. Carlo Viqueira and I went through the options in a LIFE Pod episode on the accumulation phase of infinite banking. You could keep cash under your bed and borrow from it. You could borrow from a savings account, a brokerage account, or a 401(k). What differs is how much you can get and what you risk while you hold the money.
Cash under the bed can burn in a fire or be stolen. It's available fast, and that's all it offers. A savings account is safer, but it won't grow much, and what you earn is small next to what you give up.
A brokerage account will lend against your stocks, which is called a margin loan. The catch is the limit. Many firms lend only 30% to 50% of the account's value, and those terms vary. In a market crash, you may have to pay the loan down fast to avoid a margin call, which means the firm sells your positions, often at the worst time. A brokerage account also gives you no tax advantages.
A 401(k) loan is another tool. But your employer sets the rules, and the federal cap is $50,000. That's a ceiling you hit no matter how much you've saved. If you leave your job, the repayment terms can change, so read your plan.
A policy loan works differently. Carriers will typically lend a very high percentage of your cash value, in the 90s at some carriers. Check your own contract for the exact percentage, because the hosts quoted a general figure. The loan comes with a contractual right, which means the carrier agrees in writing that you can borrow, and you don't have to explain why. A bigger policy means a bigger line of credit. As cash value builds over the years, your borrowing room can reach into the millions, if you've funded a policy large enough to do it. Funds often clear in a few days, though some carriers ask for a notary on large amounts.
Cash value in a high cash value policy also doesn't move with the stock market the way a brokerage account does. A whole life policy's guaranteed growth and any dividends depend on the contract and the company. An IUL, which means indexed universal life, credits interest tied to a market index, with a floor that protects against losses. Neither is certain, and dividends aren't guaranteed.
There are costs. A policy loan charges interest. It reduces your cash value and your death benefit while it's outstanding. And if the loan grows past the cash value, the policy can lapse, which may mean a tax bill on gains. Insurance charges come out of the policy every year, too. I'm a broker, so take the tax questions to your CPA.
Pull your own numbers this week: your brokerage margin rate, your 401(k) plan's loan rules, and the loan percentage in your policy contract.