Were you taught that life insurance is just another expense? With a properly structured plan, it can be a powerful financial tool to help you pay down debt or finance the life you’ve always dreamed of.
Whole life insurance is a permanent insurance policy that not only provides a death benefit for your loved ones, but also earns a cash value which you can use as collateral for loans during your lifetime. This cash value becomes the foundational asset within your policy. But Infinite Banking is not about the policy itself. It’s a long-term process of recapturing interest, maintaining control, and becoming the banker in your own financial life.
Keep reading to learn how whole life insurance works, including how cash value accumulates, how premiums are structured, and how it provides long-term financial security.
Whole Life Insurance Explained
How does whole life insurance work? This type of permanent insurance provides lifelong coverage, featuring four core benefits that enable you to take control of your finances for long-term wealth building: a death benefit, cash value, premium payments, and dividends and interest.
Death Benefit
Your whole life insurance policy provides your beneficiaries with a guaranteed death benefit upon your passing. They can use these funds to pay their mortgage, fund education, for general income needs, or to take time away from work while they settle your estate. It helps provide financial security for your family during their time of grief.
When you choose your life insurance policy, you select the amount of coverage you want. This becomes your beneficiary’s death benefit. With a whole life plan, this benefit is locked in and can never decrease or be cancelled unless you stop paying your premiums.
Upon your death, your beneficiaries must present a death certificate to the insurer, who will then pay out the agreed-upon death benefit (minus any unpaid premiums or policy loans).
Your death benefit may increase over time as you reinvest policy dividends into the plan or purchase paid-up additions (PUAs).
Cash Value
Curious how whole life insurance builds cash value? In addition to the death benefit, your whole life policy builds a cash value over time. This cash value is a savings-like account that you can use as collateral for a loan. As you continue paying your insurance premiums, your cash value compounds daily, increasing the amount you can borrow during your lifetime.
Increasing your premium payments and redepositing any earned policy dividends into your account (as PUAs) can enhance the compounding benefits of your policy’s cash value.
Premium Payments
Your premium payments cover the cost of your insurance policy and the expenses associated with insuring you, referred to as your Cost of Insurance (COI). In the early years of your policy, the majority of your premiums go towards your COI, which helps to build your cash value.
Your cash value continues to grow uninterrupted within your policy as long as you continue to pay your premiums, regardless of whether you take out a policy loan.
Dividends and Interest
Whole life insurance policyholder benefits often include non-guaranteed dividends. In dividend-paying whole life insurance policies, you receive a share of the company’s profits. Each year, the insurance company calculates its surplus, and a portion of these profits is distributed to active policyholders. Dividends are not guaranteed and can vary from year to year. Most reputable mutual companies have a strong track record of paying them consistently.
You can choose to take these dividends in cash, apply them to pay your premiums, or use them to purchase PUAs to increase your cash value and death benefit.
Ready to take control of your financial future?
Speak with an Ascendant Financial Advisor today and start building a strategy that protects your legacy.
How Cash Value Builds Over Time
Your cash value doesn’t just appear in your account on day one of your policy. Instead, it accumulates and compounds daily. While your account may be structured for more rapid or slow growth, here’s what to expect in the growth of your account cash value.
Early Years
Your policy cash value has guaranteed, predictable growth. However, the cash value grows more slowly in the early years. This is because a portion of your premium is allocated to cover the cost of insurance and administrative expenses. That said, your cash value begins accumulating immediately and compounds daily. Clients should expect moderate growth during this time.
This slow initial growth takes some policyholders by surprise. Utilizing whole life insurance policies in conjunction with the Infinite Banking Concept is a long-term financial strategy and mindset. While there are ways to increase growth in early years (through increasing your insurance premiums and adding PUAs), it can take several years to build up a cash value worth borrowing against.
Middle Years
As the policy matures in subsequent years, your cash value growth accelerates. A greater portion of your premium payments is allocated to your cash value, and your redeposited dividends (if declared) start to play a significant role.
If you’re reinvesting dividends into PUAs, your cash value and death benefit grow even faster. You’ll see faster growth in your compounding value, and your borrowing power increases significantly.
Later Years
Now is when your cash value reaches peak efficiency. You can clearly see the compounding effect as the cash value works to match the death benefit by age 100 (or 121, depending on the policy). Your policy has now become an even more powerful financial tool, providing substantial liquidity and a growing tax-free death benefit for your beneficiaries.
Example of Cash Value Growth
He’s an example of how your cash value accumulates year over year in a properly structured participating whole life policy.
Let’s say you’re 35 years old and pay $10,000 in annual premiums. You use a combination of base premiums and PUAs to accelerate your cash value early in your policy.
| Annual Premiums | Cash value | Observations | |
|---|---|---|---|
| Year 1 | $10,000 | $4,500 | This lays the foundation for uninterrupted, long-term compounding growth |
| Year 10 | $10,000 | $30,000 | You are declaring dividends and reinvesting them as PUAs to accelerate cash value |
| Year 30 | $10,000 | $400,000+ | You are on track for your cash value to match your death benefit by age 100. |
Accessing the Cash Value
When the time comes to use your cash value as collateral for a loan, you have several ways to access your policy’s cash value. The most common ways to access your cash value are to borrow against your policy or withdraw cash.
Borrowing Against Your Policy
Infinite Banking teaches how to use the cash value to borrow against your policy. Loans that use your policy as collateral can offer lower interest rates and flexible payment terms. There is no fixed payment schedule (unless you choose to follow one). You can repay in lump sums or make payments over time.
You benefit from:
- No additional credit checks
- No income verification
- Quicker access to funds (often within a couple of days)
- Flexible payment terms
Policy Loans vs. Withdrawals
You can access your cash value by using it as collateral (through a policy loan) or by making a withdrawal. Both come with pros and cons:
| Pros | Cons | |
|---|---|---|
| Policy Loan (Using your cash value as collateral for a loan. Cash value stays in policy) | – No taxes when borrowing (as long as the policy stays active). – Cash value keeps growing within the policy – Flexible repayment options on your terms. – No credit or income checks. | – Loan accumulates interest – Can reduce the death benefit if you pass away before the loan is repaid. – If your policy lapses, you may be subject to additional tax on gains. |
| Cash Value Withdrawal (Cash is withdrawn permanently from the account) | – No repayment required – No loan interest – Ideal when you need to reduce coverage. | – May be taxable as income (if your withdrawal exceeds your cost basis) – Permanently reduces cash value and death benefit – Partial withdrawal will lower dividends and growth potential |
Impact of Borrowing on Policy Growth
Borrowing against your policy provides you access to funds to pay off loans or make a large purchase, but it doesn’t affect the growth within your account. It also doesn’t impact your death benefit unless the loan remains unpaid at your death. If that happens, your whole life insurance death benefit will be paid out, minus any portion of the loan that was unpaid.
One of our clients purchased a new whole life insurance policy with an annual premium of $24,000. This enabled her to have immediate access to $11,906 as a policy loan, which she used to pay off high-interest debt. One of the most appealing parts of this plan was that the cash value continued to grow within the account. As she paid off her loan, she used the freed-up cash flow to purchase additional PUAs, accelerating cash growth and taking advantage of additional compound growth. This strategy not only enhanced liquidity but also provided a growing financial system they could rely on for future opportunities.
The Flexibility of Whole Life Insurance
Understanding whole life insurance helps you set up a plan with the flexibility you need. Here are three common areas where you may have flexibility:
Flexible Insurance Premiums
Life insurance makes an ideal financial tool for the Infinite Banking Concept, as it puts you, not the banks, in control of your money. Depending on your whole life insurance coverage details, you have flexibility in how to use the policy’s cash value. The growth of your cash value is influenced by how much you pay in premiums. The higher your premiums, the faster your cash value will grow.
Over time, a properly structured whole life insurance plan allows for adjustments to premiums, which can directly impact the growth of your cash value. In flexible plans, you can change your premiums to meet your changing financial circumstances.
Adding Paid-Up Additions
In addition to flexible premiums, whole life plans allow you to infuse extra cash into your plan, known as paid-up additions (PUAs). These directly increase your death benefit and insurance cash value. Unlike base premiums, PUAs are fully paid-up, meaning they don’t require ongoing payments once purchased. This creates a compounding effect, as PUAs earn dividends that can be used to purchase more PUAs, accelerating cash value growth over time.
Loan Repayment Flexibility
Another characteristic of whole life insurance is its flexibility in loan repayment. When you take out a loan using the cash value of your plan, you are not required to make fixed monthly payments. You can choose when and how much you repay, according to your schedule. Interest from any missed payments is added to your principal balance owing.
If any policy loans are outstanding upon your death, they will be subtracted from your beneficiary’s death benefit.
Take control of your financial future.
Schedule a consultation with Ascendant Financial and ensure your financial choices align with your long-term goals — before it’s too late.
How to Get Started with Whole Life Insurance
Becoming Your Own Banker through Infinite Banking starts with a participating whole life insurance plan. With a properly structured life insurance policy, you can harness the benefits of the cash value of your plan during your life. The first step is to talk with a financial advisor:
According to one of our Ascendant advisors, the key success factor is personalization: “This personalized approach ensures the policy becomes a powerful financial tool, not just an insurance product.”
Your Ascendant Financial advisor can help you personalize your whole life policy to align with your financial and life goals. Learn more about how to structure a whole life policy for Infinite Banking.
Maximizing Your Plan for Your Needs
We asked our top financial consultants, and they all recommended two ways to maximize your plan’s growth. Here’s what they had to say:
- Paid-Up Additions (PUAs): “PUAs are like mini-policies stacked on top of your base policy. They accelerate cash value growth and increase the death benefit simultaneously. By consistently funding PUAs, either through additional premiums or dividends, you create a compounding effect where cash value grows daily and earns dividends, which can then purchase more PUAs. This strategy optimizes liquidity and long-term growth.”
- Policy Loans: “Leveraging policy loans strategically allows you to access your cash value while keeping it compounding uninterrupted. Use loans for investments, major purchases, or debt consolidation, ensuring you repay them to maintain policy performance. This approach gives you control over your capital without disrupting growth.”
Start Customizing Your Life Insurance Plan Now
When you understand how to use your whole life insurance policy for more than a simple, guaranteed death benefit, you’re one step closer to Becoming Your Own Banker and taking control over your finances. Imagine building a system that gives you control over how you finance life’s major decisions. Whether you are managing expenses, investing in opportunities, or paying down debt, you can do so on your own terms without relying on traditional lenders. When you understand permanent life insurance and how it works, you get the financial flexibility and freedom you deserve.
Are you ready to learn more about how Infinite Banking and a whole life insurance policy can give you this freedom? Start by booking a call with an Ascendant Financial Advisor.
Frequently Asked Questions
What is the cash value of a $10,000 whole life insurance policy?
The cash value of your insurance policy depends on various factors, including the structure of your plan, its funding, the duration of your coverage, and the insurance company you use. For assistance in calculating the cash value of your policy, consult your financial advisor.
What are some disadvantages of whole life insurance?
Depending on your point of view, some potential disadvantages of whole life insurance include the slow growth during the policy’s early years and the long-term commitment required to see growth. With a long-term financial plan, these disadvantages can be used to your advantage.
How do you make money with whole life insurance?
Properly structured whole life insurance policies build a cash value over time. You can use this cash value to borrow against to fund your life’s expenses. This cash value compounds daily, and you can use earned dividends to accelerate that growth.
What is the catch of the whole life insurance?
There is no “catch” to life insurance, other than understanding that using it for Infinite Banking isn’t a short-term financial tool or strategy. When you commit to using your whole life insurance over the long term, it can provide growing financial benefits for you now and a guaranteed death benefit for your loved ones.
Book a Call with an Advisor at Ascendant Financial
Contact Ascendant Financial today to review all of your financial options.
Popular Posts
- Velocity Banking vs Infinite Banking: Which Wealth Strategy Wins?
Banking is no longer dominated by the banks. People around the world are discovering how to use alternative banking strategies and concepts to regain control… Read more: Velocity Banking vs Infinite Banking: Which Wealth Strategy Wins? - Permanent Life Insurance vs Whole Life: Understanding the Key DifferencesDo you have life insurance? Has it been structured to give you access to its value while you’re living? Life insurance is not a one-size-fits-all… Read more: Permanent Life Insurance vs Whole Life: Understanding the Key Differences
Share This Post
Categories & Tags
