How to Use Life Insurance to Build Wealth
Life insurance isn’t only for protecting your loved ones after you’re gone. If used correctly and responsibly, participating whole life insurance plans can become powerful, generational wealth-building strategies.
Infinite Banking and whole life insurance provide a framework for setting up your life insurance policy and utilizing it to become your own banker, thereby taking control of your finances and cash flow. If done correctly and responsibly, it won’t impact the policy death benefit for your loved ones. It all starts with educating yourself on how Infinite Banking works and how it can be used to help you achieve your financial goals now and in the future.
In this article, we’ll explain how to use life insurance to build wealth. In this context, ‘building wealth’ refers to the long-term accumulation and preservation of financial value using properly structured whole life insurance. You’ll learn how the cash value of your life insurance policy provides access to capital that you can use to fund your life now and provide generational wealth for your family.
Understanding Life Insurance Beyond Protection
Life insurance is most widely known as a vehicle to provide your loved ones with a financial death benefit upon your passing. However, a participating life insurance policy can be structured to provide additional benefits that you can use throughout your lifetime, namely by building a cash value that you can use as collateral for life insurance loans. This is part of the Infinite Banking Concept.
This financial strategy requires a participating, dividend-paying permanent insurance policy (such as a participating whole life insurance policy). These policies provide guaranteed whole life insurance cash value growth, fixed premiums that don’t increase as you get older, and the ability to leverage that cash value for policy loans at more favorable rates and terms than traditional lenders.
It’s worth noting that this is not possible with term life insurance policies. These policies are typically only for a set period of time (typically 10-30 years). They are lower-cost plans and don’t include a savings or investment component, and thus don’t build a cash value like a permanent life insurance policy.
It’s also important that your policy is dividend-paying. This means you’re a shareholder of the company and you receive a portion of the insurance company’s profits annually. Within the Infinite Banking Concept, you would use these dividends to purchase Paid-up Additions (PUAs) to accelerate the growth of your cash value in your policy. This can also be used to reduce your out-of-pocket premiums.
Here’s a quick comparison of term vs whole life insurance and how it relates to Infinite Banking:
| Whole Life | Term Life | |
| Coverage Timeline | Lifetime (as long as premiums are paid) | Fixed term (typically 10-30 years) |
| Cash Value | Yes, guaranteed growth that compounds daily | n/a |
| Premiums | Fixed | Variable (but usually lower than whole life premiums) |
| Infinite Banking Compatible? | Yes | No |
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How Whole Life Insurance Builds Cash Value
To understand how your policy builds cash value, you first need to understand where your premiums are allocated. Your premium payments are split between your insurance costs (including administration fees and death benefit) and the cash value (the investment portion that grows inside your policy). Early in your policy, a greater percentage of your premium payment goes towards your insurance costs. Once that’s paid off, more of your premium goes towards your cash value, helping it grow faster.
The growth of your cash value is guaranteed by your insurer, regardless of external factors like market conditions. It also grows tax-deferred as long as it remains in your policy.
In dividend-paying whole life insurance, you are a shareholder of the company and are entitled to annual dividends (if available). Every year, your insurance company will report its annual profit and loss, and in profitable years, you’ll receive a dividend payment. This is not a guaranteed payment, but it can (historically) be expected from reputable insurance companies. You can use this dividend to buy Paid-up Additions (PUAs) to accelerate the growth of your cash value and increase the death benefit (without paying additional premiums).
Example Policy Growth Over Time
The figures shown in this example are for illustrative purposes only and do not reflect any specific insurance company or policy. The assumptions are:
Policy type: Participating Whole Life Insurance
Insured: Male, age 35, non-smoker
Annual premium: $10,000 (level premiums)
Initial death benefit: $500,000
Dividend interest rate: 5.5% (non-guaranteed)
Guarantees: Based on insurer’s minimum guaranteed cash value accumulation and death benefit
Dividends: Shown at the current scale interest rate and not guaranteed; actual results will vary
| Annual Premium | Guaranteed Cash Value | Cash Value + Dividends | Total Death Benefit | |
| Year 1 | $10,000 (stays the same) | $1,500 | $1,600 | $505,000 |
| Year 5 | $28,000 | $30,500 | $520,000 | |
| Year 10 | $65,000 | $72,000 | $550,000 | |
| Year 20 | $165,000 | $190,000 | $630,000 |
All values are rounded for simplicity and illustrative clarity.
Using Policy Loans to Access Capital
Your policy cash value can be used as collateral for policy loans, which you can take out at any time for any reason. Typically, people use policy loans to pay off high-interest debts or make large purchases, such as a car or a home. When you take out this type of loan, you borrow against the cash value of your policy, rather than withdraw it. Your cash value remains in your policy and continues to grow uninterrupted.
These life insurance loans have more flexible terms and interest rates than you can expect from traditional lenders, because the cash value of your policy is your collateral. You can repay your loan on your schedule, and the interest you pay is reinvested in your policy through PUAs to accelerate its growth. With traditional loans, the lender keeps the interest paid.
Using your policy cash value as loan collateral is beneficial because:
- It’s tax advantaged (it isn’t counted towards your taxable income).
- It increases your liquidity (without selling assets).
- Interest payments go back into your policy and are used to help your policy grow (not paid to the lender).
Note: Policy loans reduce the available cash value and death benefit if not repaid. Interest accrues on outstanding balances, and unmanaged loans may cause a policy to lapse. Always consult a qualified advisor before accessing loans.
Infinite Banking Concept™: Becoming Your Own Banker
The Infinite Banking Concept utilizes your dividend-paying whole life insurance policy as its primary financial tool. You invest in paying your policy premiums, and you become your own banker, using your policy like a personal bank. This gives you financial control, the benefits of uninterrupted compounding growth of your policy cash value, and independence from traditional banks and lenders.
Here’s a real-life example of an Ascendant Financial client that used Infinite Banking as a powerful tool for growing and protecting their wealth. I recently worked with a family that had $200,000 in consumer debt. They were determined to eliminate this debt, but also wanted to build a financial system that would serve them in the long term. Here’s how they became debt-free and financially independent:
- They started with an annual life insurance premium of $24,000.
- Within 30 days of the policy being issued, they earned a cash value of $11,906 in their policy.
- Using this cash value as collateral, they borrowed $10,000 and used it to pay their Visa balance.
- They then redirected their previous $500 monthly credit card repayments back into their policy.
- Over the next 44 months, they used policy loans to eliminate all $200,000 of their consumer debt.
Not only did this pay off their debt, but they also built an asset. They didn’t work harder, take on additional risk, or change their cash flow. They simply changed the process of managing their money.
Wealth Transfer and Legacy Planning
Whole-life insurance policies can be used as an estate planning tool for building generational wealth:
- Your beneficiary’s death benefit is paid out, tax-free, providing financial peace of mind to help cover estate taxes, debts, and other expenses to settle your estate after your passing.
- The cash value compounds and grows daily, tax-advantaged. You can access this asset during your lifetime while still leaving your financial legacy behind.
- A well-funded policy can be used to fund policies for children and grandchildren, creating a self-sustaining generational wealth with life insurance.
Life Insurance vs. Traditional Savings & Investments
When should you consider other financial tools, like investing in traditional savings and investment accounts? Here’s a summary of what to expect with three common wealth or investment tools:
| Whole Life Insurance (Cash Value) | Savings Accounts or GICs | Investment Savings Account (RRSP, TFSA) | |
| Best For… | Long-term wealth and estate planning (and the Infinite Banking System) | Emergency and short-term goals | Retirement or major financial goals |
| Purpose | Financial Tool: Long-term wealth growth and protection | Investment: Short-term growth | Investment: Long-term growth |
| Risk | Low | Low | Medium to high (market-dependent) |
| Liquidity | Loans are typically tax-free | Liquid, easy to withdraw | Can be tax-deferred (RRSP) or tax-free (TFSA) |
| Death Benefit | Tax-free death benefit | none | Only if the balance remains |
| Growth Guarantee | Guaranteed minimum rate | Sometimes guaranteed (like GICs) | Market-variable |
The real power of Infinite Banking lies in its ability to complement investments like mutual funds or ETFs. By using your policy as a source of capital, you can fund investments while your money continues to grow inside the policy. It’s about creating a system where you’re in control of your financial flow.
Risks, Limitations, and Misconceptions
Infinite Banking and using your life insurance cash value as loan collateral may seem like the quick answer to your financial woes, but it’s not without risks and limitations.
Common risks and limitations of Infinite Banking include:
- MECs (Modified Endowment Contracts). In the US, the IRS sets limits for your policy. If your premiums exceed the amount required to fully pay up your policy within seven years, it becomes a MEC, which means loans and withdrawals from your cash value become taxable, and may be subject to a 10% penalty if withdrawn before you turn 59.5 years old. (Canada has a similar law known as the Maximum Tax Actuarial Reserve limit)
- Poorly (or incorrectly) designed policies. To maximize cash value growth and effectively leverage the Infinite Banking Concept, you need to structure your policy with sufficient Paid-Up Additions (PUAs). Skimping on this feature limits the policy’s potential for wealth building.
- Not repaying loans. Failure to repay your policy loans can result in defaulting on your policy, which will cause you to lose all death benefits and trigger an income tax event.
- Treating it like a one-size-fits-all solution. A properly designed whole-life policy for wealth building must be tailored to your specific goals, cash flow, and long-term financial plans. Rushing into a policy without understanding how it integrates into your overall financial strategy often leads to disappointment.
A final mistake we see clients making is failing to work with an experienced financial advisor or coach. This important step helps ensure your policy is set up correctly. Your advisor helps you stay on the right financial path to avoid missing out on key benefits, such as uninterrupted compounding and tax advantages of life insurance policies.
Choosing the Right Policy for Wealth Building
The successful use of Infinite Banking begins with the right policy tailored to your specific needs. At a minimum, your policy should include:
- A dividend-paying policy
- Ability to add PUAs to accelerate growth
- Term rider options
- Strong loan provisions
Choose a reputable insurer with good financial strength (you can see their public annual reports), positive claims history, and a reputation for good service. Your Ascendant Financial Advisor can help you select reputable insurance companies that meet your specific needs.
Questions to ask before buying a wealth-building policy
- What is the policy’s primary purpose?
- How is cash value structured?
- What are the costs and fees?
- How do I borrow against the policy (a policy loan)?
- What are the tax implications, and when are they triggered?
- What happens if I can’t pay premiums?
Your Ascendant Financial Advisor can help you answer these questions and choose a suitable policy based on your responses and financial needs.
Ready to take control of your financial future?
Speak with an Ascendant Financial Advisor today and start building a strategy that protects your legacy.
The Role of Coaching and Ongoing Policy Design
A financial advisor does more than help you set up your policy. They can become your ongoing financial coach for the Infinite Banking Concept. They can help you choose the best way to invest or use extra cash you may have, use your policy loans responsibly, and provide ongoing guidance as your life or financial needs evolve.
At Ascendant Financial, we’re not salespeople; we’re coaches committed to guiding our clients through their financial journey. We value ongoing education, helping our clients stay informed, and keeping their financial knowledge up-to-date so they can take full advantage of all the Infinite Banking benefits.
Want to know if this strategy makes sense for your family? Join our free Infinite Banking webinar.
FAQs About Wealth Building With Life Insurance
How do millionaires build wealth using life insurance?
Millionaires use their whole life policy as a financial tool to build and protect their wealth. They leverage their policy’s cash value, which continues to grow daily on a tax-advantaged basis, as a private pool for capital, to access policy loans for investments, business, or personal expenses. People also use life insurance for wealth transfer to future generations.
What is the cash value of a $100,000 life insurance policy?
The cash value of your policy will vary depending on the type of policy, how long you’ve had it, if you’ve added PUAs, and more. Your cash value will be lower in the first few years, but through compounding growth, it will grow at a faster rate the longer you have the policy.
Can I live off of life insurance?
A properly structured, well-funded life insurance policy with PUAs can potentially earn you enough to live off of. However, it requires very careful planning and responsible financial practices. It’s best to discuss your options with your Ascendant Financial Advisor to ensure it’s the right income generation tool you need.
Can I withdraw my cash value from life insurance?
There are situations where you can directly withdraw cash value from your policy, rather than use it as collateral for a loan. However, these withdrawals will typically be subject to income tax and potentially an additional 10% fee if withdrawn before the age of 59.5.
Using Whole Life Insurance as a Wealth Building Tool
Utilizing your whole life insurance as a wealth-building tool is possible with the right understanding of Infinite Banking, a properly structured and funded insurance plan, and ongoing financial advice and coaching. With the right design and coaching, you can take control of your money, create lasting wealth, and secure your family’s future.
The financial advisors and coaches at Ascendant Financial are ready to help. With our expert educational resources, personalized coaching, and plan structuring, we can help you use the Infinite Banking System to build and protect your financial wealth for generations to come.
Curious if Infinite Banking is right for you? See if you’re a good fit today.
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