FAQs: Common Questions Answered

How does Whole Life insurance appear on my company’s financial statements?

Whole Life insurance can be reflected in your company’s financial statements as follows:

Balance Sheet: The cash value of the Whole Life policy is typically recorded as an asset. If the business takes out a loan against the policy, this loan may appear as a separate liability on the balance sheet.
Income Statement: Premium payments made on the policy are recorded as an expense. However, in most cases, these premiums are not tax-deductible if you want to maintain the various tax advantages of Whole Life insurance.
Tax Considerations: It is essential to consult with a tax professional to understand how your Whole Life policy impacts your financial statements and tax position, as tax treatment can vary depending on your situation.

Should the Whole Life policy be owned by the business (Corporate-Owned Life Insurance or COLI) or personally by the owner?

The decision of who should own the Whole Life policy depends on various factors, including the purpose of the policy, tax implications, and the specific financial goals of the business owner. Here are the primary options:

Corporate-Owned Life Insurance (COLI): The business owns the policy, pays the premiums, and is the beneficiary. This is common for protecting against the loss of key personnel or as an executive benefit.
Personally Owned Policy: The owner or another individual owns the policy, even if it is used for business purposes. This may offer more flexibility in using the policy’s cash value.
Hybrid Approach: In some cases, a combination of business and personal ownership may be beneficial, depending on your goals.

We can help you assess the best ownership and beneficiary structure for your situation.

What if a business owner is uninsurable?

If the primary business owner is uninsurable, there are still options for implementing Infinite Banking:

Key Person Policies: The business can take out Whole Life insurance on other insurable key employees, allowing the business to benefit from Infinite Banking even if the owner is uninsurable.
Family Ownership: In some cases, a policy can be taken out on a family member who is insurable, with the owner still benefiting from Infinite Banking.
Cross-Purchase Arrangements: Business partners may insure each other, providing coverage and Infinite Banking benefits without needing to rely on a single person’s insurability.

How do you work with business owners to implement Infinite Banking?

We begin with a personalized analysis of your business’s cash flow, liquidity, and financial goals. Our process includes:

Policy Design: We help design a Whole Life policy tailored to your business’s needs, ensuring that it maximizes cash value growth and supports your goals.
Infinite Banking Strategies: We educate you on how to use the policy for Infinite Banking, including using policy loans for business expenses, growth opportunities, or even to smooth out cash flow.
Ongoing Support: We provide continuous guidance to help you optimize your policy over time, adapt to changing business needs, and ensure that the policy remains an asset to your business.

How can my business use Infinite Banking to enhance financial stability and growth?

Infinite Banking through a Whole Life policy can be a powerful tool for businesses:

Emergency Liquidity: Access the cash value of the policy without disrupting business operations or taking on high-interest loans.
Opportunity Capital: Use policy loans to fund new investments, equipment purchases, or expansion without traditional bank financing.
Tax-Efficient Growth: The cash value grows tax-deferred, providing a tax-advantaged source of funds.
Employee Retention: Use policies as executive bonuses or retention tools for key employees.
Legacy Planning: If the business is sold or transitioned, the policy can provide funds for buyout agreements or a financial cushion for the owner’s family.

What are the tax implications of using a Whole Life policy for Infinite Banking in my business?

The tax treatment of Whole Life policies can vary based on ownership, use, and policy structure:

Premium Payments: Generally, premiums paid are not tax-deductible for businesses if you wish to maintain the tax advantages of Whole Life insurance (such as tax-deferred growth and tax-free death benefits).
Cash Value Growth: The cash value of the policy grows tax-deferred, meaning you are not taxed on the growth until you withdraw it.
Policy Loans: Policy loans are generally not considered taxable income, provided the policy remains in force.
Legacy Planning: If the business is sold or transitioned, the policy can provide funds for buyout agreements or a financial cushion for the owner’s family.

We strongly recommend consulting with a tax professional to ensure your policy is structured to maximize tax benefits without unintended consequences.

Policy Loans

Why aren't there restrictions or repayment requirements on policy loans? Policy loans are secured by the death benefit of your Whole Life insurance policy. When the insured passes away, any outstanding loan balance is deducted from the death benefit, and the remaining amount is paid to the beneficiary.

Eligibility: Available once the policy accumulates sufficient cash value (usually 90-95% of cash value).
No Credit Check: No application, credit check, or fees.
Interest Rate: Can be fixed or variable, set by the insurance company.
Repayment: No fixed schedule, but unpaid loans plus interest are deducted from the death benefit.
Growth Continues: The cash value continues to grow, earning dividends even with an outstanding loan

Life Insurance Policies

Can I get an IBC policy if I already have life insurance? Yes. Your eligibility for additional policies depends on your total insurability, which is determined by factors like income, assets, current life insurance coverage, and more.
Can I use more than one policy in my IBC strategy? Yes. Many IBC practitioners own multiple policies on themselves, family members, business partners, and key employees to expand their wealth management system over time.
Does any Whole Life insurance policy work for IBC? No. Policies for IBC must be specifically structured for optimal cash value accumulation. Standard Whole Life policies may take longer to build significant cash value.

Whole Life vs. Indexed Universal Life (IUL)

Why do you use Whole Life instead of Indexed Universal Life (IUL)? Whole Life offers guaranteed, predictable growth and stability due to fixed insurance costs, while IUL costs increase over time. This stability makes Whole Life ideal for Infinite Banking.

What is Cash Surrender Value (CSV)?

Cash Surrender Value is the actual cash value of a Whole Life insurance policy as defined by the insurance company. It represents the net present value of the policy's guaranteed death benefit and is commonly referred to as the “cash value.” This amount accumulates over time and forms the basis for the policy’s value. It’s important to note that while the cash value refers to this total, the available cash value may be different, as it factors in policy loans or other encumbrances.

Mutual vs. Stock Insurance Companies

What is the difference between a Mutual Company and a Stock Company?

Mutual Company: Owned by policyholders, who share in company profits through dividends.
Stock Company: Owned by shareholders, who receive dividends, with policyholders having no ownership.

Modified Endowment Contract (MEC)

What is a MEC? A MEC is a life insurance policy that fails the IRS “7-pay test,” losing tax advantages. Withdrawals or loans are taxable, and penalties may apply if taken before age 59½.

Dividends in Whole Life Insurance

What are dividends? Dividends are a share of the insurance company’s profits distributed to policyholders with participating policies. They can be taken as cash, used to reduce premiums, or reinvested to purchase Paid-Up Additions (PUAs).

Direct Recognition vs. Non-Direct Recognition

Start with a free consultation. We’ll assess your goals, explain how Infinite Banking works for your situation, and design a plan that helps you achieve financial freedom.

What is Direct Recognition? With Direct Recognition, dividends are adjusted if there is an outstanding policy loan, reflecting the loan’s impact on the cash value.
What is Non-Direct Recognition? Non-Direct Recognition policies maintain the same dividend rate regardless of outstanding loans.

Guaranteed Contract Rate

What is the Guaranteed Contract Rate? This is the minimum interest rate that the policy’s cash value will earn, guaranteed by the insurance company, regardless of market conditions.

Interest Rates on Policy Loans

What is the interest rate on policy loans?

Fixed Rate: Set by the policy contract, typically associated with direct recognition.
Variable Rate: Tied to market indexes, often associated with non-direct recognition.

Interest Rates on Policy Loans

How do policy loans affect the death benefit? Outstanding loans (principal and interest) are deducted from the death benefit at the time of the insured’s death. The remaining amount is paid to the beneficiary.

What are Paid-Up Additions (PUAs)?

Paid-Up Additions are miniature Whole Life policies added onto the base policy. They are purchased with either direct premium payments or reinvested dividends and increase both the death benefit and the cash surrender value. PUAs play a vital role in accelerating the growth of the policy’s total cash value.

What’s wrong with “Buy term, invest the rest?

While this phrase is catchy, it’s flawed in real-world application:

Most people don’t actually invest the rest. As Nelson Nash discussed in Becoming Your Own Banker, Parkinson’s Law suggests people tend to spend whatever capital is available. So, even with good intentions, “investing the rest” rarely happens consistently.
Term insurance expires. It becomes prohibitively expensive as you age, leaving you uncovered when you may need protection the most.
Investment returns aren’t guaranteed. Many people pour money into tax-deferred accounts that are illiquid until retirement. When emergencies arise, they’re forced to rely on high-interest debt just to access cash.
Repayment: No fixed schedule, but unpaid loans plus interest are deducted from the death benefit.
Growth Continues: The cash value continues to grow, earning dividends even with an outstanding loan

At Downstream Wealth, we believe it’s smarter to control the banking function in your life—using a properly structured Whole Life policy, not relying on speculation or expiration.

I already have an IUL, VUL, or UL policy. Is that the same as Infinite Banking?

No, it's not the same—and here's why:

While Universal Life policies (including Indexed and Variable versions) were created with flexible premiums and growth in mind, they are market-sensitive and often underperform against original illustrations. Regulatory changes have tried to address these issues, but the risks remain.

We strongly recommend requesting an up-to-date, in-force illustration from your carrier. Our team can review your current coverage and explain how it compares to a properly structured Whole Life policy—the only product suitable for Infinite Banking. If needed, we’ll show you how to transition into a safer, more stable financial asset.

Is Infinite Banking an investment?

No. Infinite Banking is not an investment—it’s a savings and capital management strategy.
Investments come later. Infinite Banking is about first building a financial foundation: guaranteed growth, protection, liquidity, and control. When structured properly, your Whole Life policy becomes a financial cornerstone, giving you the power to take advantage of opportunities without sacrificing your capital.

How is Infinite Banking better than a traditional savings account?

Traditional savings accounts offer two benefits: safety and liquidity. Infinite Banking offers these—and more:

Guaranteed growth through uninterrupted compounding
Annual dividends (non-guaranteed but historically reliable)
Tax-free access and death benefit protection
Legacy planning and creditor protection
The ability to borrow against your cash value without interrupting its growth

You’re not just saving—you’re strategically leveraging your dollars in a way that preserves both principal and momentum.

Can I use my 401(k) like I would an IBC policy?

Unfortunately, no.

401(k) loans are highly restrictive, often capped at 50% of your vested balance. Repayment terms are fixed, and if you change jobs, the loan may come due immediately. Non-repayment results in tax penalties and early withdrawal fees.
More importantly, with a 401(k), you’re borrowing from your capital, interrupting its growth. With Infinite Banking, you borrow against your capital—your cash value continues compounding uninterrupted.

Access, control, and flexibility are core to IBC—and sorely lacking in 401(k) loan structures.

How is this different from a HELOC?

While a Home Equity Line of Credit gives you access to capital, it comes with risk and restrictions:

Your borrowing power is tied to your home’s market value
Lenders can freeze or cancel your HELOC
Interest rates are variable and can spike unexpectedly
If real estate values drop, your line may shrink or disappear

IBC, by contrast, is based on your life insurance contract, not a volatile asset class. You control the terms, you set the timeline, and your access isn’t subject to outside institutions or market swings.

Can’t I get better returns investing elsewhere?

Possibly. But that’s not the point of Infinite Banking.
IBC is not a replacement for investing—it’s a pre-investment strategy. It positions you to:

Be patient and selective with investments
Have liquidity when opportunity arises
Avoid interrupting your capital's compounding

We support investing, but it should come after you’ve built a base of stable, liquid capital. IBC pays you to wait—and when the right deal shows up, you're ready without disrupting your long-term plan.

How is Infinite Banking different from investing?

Infinite Banking is about saving with strategy. It’s about where and how you store your cash—safely, tax-efficiently, and with liquidity.

Investing, on the other hand, is about risk and return. You’re trading certainty for the chance of greater gains—and with that, the risk of loss.

IBC reduces risk, builds stability, and allows you to move into investments from a position of strength.

Frequently Asked Questions