Policy Loan Leverage: Access Capital Without Interruption

The key mechanism that makes Infinite Banking work. Borrow against your cash value without stopping compound growth.

Every financial vehicle has a fatal flaw when you need liquidity

The Problem with Traditional Access

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401(k) / IRA

Withdrawals before 59½ trigger 10% penalty + income tax + permanent loss of tax-free growth. Loans require you to sell investments (interrupts compounding) and must be repaid within 5 years or it's treated as taxable distribution.

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Brokerage Account

Selling winners triggers capital gains tax (15-23.8%). Margin loans are callable (forced liquidation in downturns) and expensive (8-13%). Either way, you lose or risk your positions.

The wealthy don't sell assets. They borrow against them. And they use structures where borrowing doesn't interrupt growth.

The mechanism that makes your money work twice

How IUL Policy Loans Work

The Mechanics

You fund your IUL policy: Premiums build cash value, which grows tax-deferred.
Cash value becomes available for loans: Typically 90-95% of cash value is loanable after year 1.
You request a policy loan: Insurance company lends you money using your cash value as collateral (not source).
Your cash value CONTINUES to grow: As if you never took the loan. This is the magic.
You pay interest on the loan: Typically 5-6% simple interest, not compound.
No required payment schedule: Pay back whenever you want, or never (loan deducted from death benefit).

The Key Difference

Traditional loan: You borrow money. Your collateral stops earning or is at risk.

IUL policy loan: Insurance company lends you money. Your cash value continues compounding as if untouched.

Your money works in two places simultaneously.

Comparison across common scenarios

Policy Loan vs. Other Financing

Feature	IUL Policy Loan	401(k) Loan	Home Equity Loan	Credit Card
Interest Rate	5-6%	Prime + 1-2%	7-9%	18-29%
Credit Check	❌ No	❌ No	✅ Yes	✅ Yes
Interrupts Growth?	❌ No	✅ Yes	N/A	N/A
Repayment Terms	Flexible, no schedule	5 years max	5-30 years fixed	Minimum payment req'd
Tax on Loan?	❌ No	❌ No (unless default)	❌ No	❌ No
Can it be called?	❌ No	✅ Yes (if you leave job)	✅ Yes (if default)	✅ Yes

See the difference between traditional and policy loan financing

Real Example: Financing a Car

Traditional Auto Loan

Purchase price: $50,000
Interest rate: 7%
Term: 5 years
Total interest paid: $9,522
Opportunity cost (lost growth): $23,000 (if you had invested instead)

Total cost: $82,522

IUL Policy Loan

Loan amount: $50,000
Loan interest: 5%
Cash value growth (continues): 6%
Net spread: 1% in your favor
Total interest paid: $7,000 (over 5 years)
Cash value growth (uninterrupted): $16,938

Net gain: +$9,938

You have the car AND more wealth than when you started.

Frequently Asked Questions

The loan stays on the books and accrues interest. At death, the death benefit pays out minus the loan balance. If the loan grows too large, it could lapse the policy, but modern IULs have safeguards to prevent this.

Eventually, yes. Once your cash value exceeds your basis (total premiums paid), you can borrow the excess. This is where the "infinite" part of Infinite Banking begins.

You can, but withdrawals are less optimal. They reduce your death benefit permanently and are taxable after basis. Loans preserve death benefit and are tax-free.

Context matters. Credit cards charge 20%+. Mortgages are 7-8%. A 5-6% policy loan that doesn't interrupt compounding is often the cheapest money you can access.

Want to See Your Numbers?

Policy loan leverage is powerful when structured correctly. The key is having the right policy design and understanding how to optimize the spread between loan cost and cash value growth.

Schedule a Strategy Session