Infinite Banking is a scam!
Is Infinite Banking as good as everyone says it is or are they scamming you? We’ll answer that today.
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Today, we’re diving into a topic that sparks a lot of debate—why some people consider Infinite Banking a scam. If you search infinite banking scam on Google or whatever search engine you’ll find a lot of people get all up in their feelings about this strategy.
In today’s blog, we’ll unpack some of the criticisms, look at both sides, and address some legitimate concerns people have about this financial strategy.
Before we start, the strategy is not a scam, it’s something that we at Safe Pacific have been implementing for 100s of Canadians for more than 10 years, it’s something our team does personally and we love it.
But here we go…
Infinite Banking: Why Do Some People Call It a Scam?
Here are some of the main reasons people call the infinite banking concept a scam
1. "You Could Make More Money with Other Investments"
One of the most common critiques of Infinite Banking is the perceived opportunity cost. You could put your money into something else.
The most common argument is that you get higher returns by putting your money into an equity portfolio or an S&P 500 ETF, which has an average annual return of around 9%.
And yes, it's true, investing into an equity ETF will generally yield a higher return over time than the conservative growth you would see inside a whole life insurance policy.
It doesn’t take a genius to figure out that an equity portfolio will usually generate a higher return than a conservatively managed fund inside an insurance policy. 100% agree. If generating the absolute highest % return on your money is your only concern then yeah go invest in equities or buy some bitcoin or bet on a football game.
These 2 things are vastly different. An equity portfolio or S&P index ETF and the cash values inside a life insurance policy are completely different things with completely different mandates and set up to do completely different things for completely different reasons.
This comparison also assumes that putting some of your money into one of these things means that you wouldn’t put money into the other – which is silly. It’s not a zero sum game where you can only put your money into the cash value of a life insurance policy or only put your money into an equity portfolio or real estate
A proper financial strategy will have some insurance and some investments and we highly recommend to do both.
This argument also doesn’t take into account the many benefits of a whole life insurance policy like never having a negative return inside the policy, the tax advantaged growth inside, the fact that you get permanent life insurance that you probably need, the fact that the account is so secure you can leverage against it from the insurance company or a bank, the fact that you can use your money without withdrawing it or interrupting the compound growth over time. These are valuable things to the right person and this argument completely discounts that.
2. "It’s Too Expensive"
Another frequent criticism is the cost associated with Infinite Banking, especially the whole life insurance policies it uses.
People argue that whole life insurance is significantly more expensive than term life insurance. Because of this you should never do it and only buy the less costly term insurance.
Again, whole life insurance and term insurance are 2 different things. Term insurance ends at a certain time – usually after 10 or 20 years. Then the renewal is usually significantly more expensive and eventually people will cancel their term insurance because it becomes prohibitively expensive.
Whole life is there for your entire life. You get 1 price now and that’s your price forever. It’s also guaranteed to pay out because one day you’re going to die – shocking I know.
Term life may or not pay out because you may or may not pass away during the term of the insurance.
Because it’s more expensive isn’t really a good argument for me.
I use car analogies a lot – you could buy a Toyota Yaris here in Canada for around $20,000
You can also get a Lexus LS here in Canada for around $150,000. That’s 7 times more expensive.
It’s exactly the same thing – 4 wheels, a windshield, doors, gets you from here to there. The cars are even both made by the same company. So using the “it’s more expensive don’t buy it” argument means that nobody should ever buy a Lexus and you should only ever buy a Yaris. And that’s silly.
3. "It’s Too Complex"
The complexity of Infinite Banking is another common complaint. Many find it intimidating to understand all the moving parts of a whole life policy, including premiums, cash value, dividends, and policy loans.
Here’s an actual quote from an article I read: “Infinite Banking can be a complex financial strategy that requires careful planning and understanding of the policy terms. It may not be suitable for individuals who prefer a more straightforward approach to managing their finances.”
While there is a learning curve, the core principles are straightforward, especially with the resources we’ve created for you all over this Youtube channel.
We also work with our clients and coach them for their life when they set up a policy with us. We help them understand the values, what they can do with the policies, the taxability, how to take loans, how to pay them back, how to set up your beneficiaries and everything.
We don’t just set these policies up for people and then never talk to them again. We actively work with all our clients over time.
If you find it complex, that’s okay—it may simply mean the strategy isn’t the best fit at this time.
4. "You Have to Pay Interest to Use Your Own Money"
This one’s a big one.
Some people can’t wrap their head around “why would I pay interest to use my own money? This is a scam.”
The benefit of taking loans against the cash value of your policy (and paying interest) is that you don’t withdraw the money from your cash values and interrupt the compounding growth. This really adds up over the lifetime of your policy and is a key feature of how the strategy works.
When you liquidate your investments for cash, you stop the growth. With infinite banking, the cash value growth never stops if you do it right.
I take policy loans all the time myself and I understand there’s an interest charged. It’s part of how it works.
5. "Pushy Sales Tactics"
One of the main reasons Infinite Banking is labeled a scam is due to overly aggressive sales tactics, especially in the United States. Some financial agents pitch Infinite Banking as a “miracle solution” to everyone, claiming it’s the answer to all financial needs.
Yes I agree with this one completely. There are some dickhead pushy sales people out there that really shouldn’t be talking about infinite banking and who do the industry a disservice.
I wish there weren’t aggressive sales people who did the wrong thing to line their pockets at their client’s expense.
There are also life insurance agents out there who try to fit this strategy onto everyone and that’s not a good idea. The infinite banking concept is not for everyone. You have to have good financial habits in place before doing this, you have to have good cash flow, you probably should fill up other investment accounts and take care of other financial priorities before doing this.
I agree – pushy sales people – I don’t like them either. Our value system here at Safe Pacific ensures we are never those pushy sales people – in fact you can see our values on our website or written on the wall in our office and 1 of those values is “no pressure, no rush”.
Is Infinite Banking Right for You?
The Infinite Banking Concept is an awesome tool for some people.
It is definitely not meant for everybody! And it is not intended to be a one-size-fits-all approach.
If you’re building your financial foundation with tools like a Tax-Free Savings Account (TFSA) or an RRSP, that’s a great start. Infinite Banking may come into play once you’re ready for a more advanced strategy.
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