Understanding Infinite Banking: Does It Make Sense For You?

If you’ve spent much time on investing forums or sub-Reddits (or even TikTok), you’ve probably come across the term “infinite banking” or “banking on yourself”.The term comes from Nelson Nash who was an economist that aligned with the Austrian school of economics. Nash’s theoretical leanings certainly influenced the concept of infinite banking, but regardless of your economic ideals it’s important to ask the question is infinite banking for me. In this post, we’ll explain the basic concepts behind infinite banking, and explain why the concept is probably not the best way to build wealth for the average (or slightly above-average) person. Plus, we'll give you some of the big red flags to look out for - especially if someone is pitching you hard on this concept.Editor's Note: This article has been updated over the years, and the comments below reflect some criticisms of our take. We strongly encourage you to read them, and then reflect on how you would know whether a life insurance policy being sold to you is the best for what you're trying to achieve? Table of Contents What Is Infinite Banking?Practically Speaking, What Is Needed To Make Infinite Banking Work?The Big Downside: The Insurance Is ExpensiveShould The Average Person Pursue Infinite Banking? What Is Infinite Banking?If you’ve ever heard a pitch for a whole life insurance policy, one of the strong selling points for the product is that policyholders can borrow against the actual cash value of the life insurance policy. If you need to pay for an engagement ring, a child’s university bill or a new car, you can borrow against the policy.

According to Nash, an individual who has enough money in whole l