Common Mistakes to Avoid When Using Infinite Banking

Infinite banking offers a unique way to build financial control by leveraging the cash value of a whole life insurance policy. It promises flexibility, tax advantages, and access to funds without relying on traditional banks.

But like any powerful strategy, infinite banking requires knowledge and discipline. Without proper understanding, people make mistakes that can limit its benefits or even cause financial setbacks.

This article highlights the most common mistakes people make with infinite banking—and how you can avoid them to get the most out of your policy.

Mistake #1: Not Funding the Policy Properly

Infinite banking depends on building significant cash value inside the policy. Underfunding your policy means less cash value growth, which limits your borrowing power and reduces the overall benefits.

Some people start with low premiums or stop paying consistently, which defeats the purpose.

Tip: Work with your agent to set a funding plan that maximizes cash value growth while staying within IRS guidelines to avoid Modified Endowment Contract (MEC) status.

Mistake #2: Using Policy Loans Irresponsibly

Policy loans are a key feature of infinite banking—but they’re not “free money.”

Failing to repay loans or letting interest accumulate can reduce your policy’s death benefit and cash value, potentially putting the policy at risk.

Tip: Treat policy loans like real debt. Have a plan to repay loans and track balances carefully.

Mistake #3: Expecting Quick Returns

Infinite banking is a long-term strategy. It doesn’t generate overnight wealth or replace investments.

Expecting immediate large gains or quick cash flow leads to frustration and poor decisions.

Tip: Be patient and focus on the long-term growth and flexibility your policy provides.

Mistake #4: Ignoring Policy Costs and Fees

Whole life insurance policies have ongoing costs, including the cost of insurance and administrative fees.

Ignoring these costs or underestimating their impact can cause cash value to grow slower than expected or even decline.

Tip: Understand all costs before purchasing and monitor your policy regularly to ensure it remains healthy.

Mistake #5: Not Working With a Knowledgeable Agent

Infinite banking is complex and requires expert guidance.

Working with someone unfamiliar with the strategy or inexperienced in policy design can lead to poorly structured policies and missed opportunities.

Tip: Partner with a professional who specializes in infinite banking and understands your goals.

Mistake #6: Using Infinite Banking for the Wrong Reasons

Infinite banking isn’t a one-size-fits-all solution.

Using it just because it sounds cool or to avoid banks without a clear plan can backfire.

Tip: Make sure infinite banking fits your financial situation, goals, and discipline level.

Mistake #7: Overborrowing or Borrowing for Non-Essential Expenses

Using policy loans for discretionary spending or excessive borrowing can erode the policy’s benefits.

This can jeopardize your long-term financial security and limit the policy’s effectiveness as a wealth-building tool.

Tip: Use policy loans strategically—ideally for investments, emergencies, or planned expenses.

Final Thoughts

Infinite banking can be a powerful financial tool when used correctly. Avoiding these common mistakes helps ensure your policy grows as intended and provides the flexibility and security you expect.

At My Term Life Guy, we guide you through designing, funding, and managing your infinite banking strategy for lasting success.