How to Break a Policy Designed For Infinite Banking (And How to Make Sure You Never Do)

Most people work hard, earn a decent income, and still feel like their money is slipping through their fingers. They pay their bills, service their debt, maybe save a little, but at the end of the month there is very little left that they truly control. The goal of Infinite Banking is to help people understand where their money is going and how to take back control of it.

One of the most common concerns people have when learning about Infinite Banking is the fear of “breaking” their policy. They worry about doing something wrong, choosing the wrong company, or having the insurance carrier change the rules. That fear is understandable, especially when most financial products feel complicated and fragile.

Here is the truth that surprises most people. A properly designed Infinite Banking policy is not fragile at all. The insurance company cannot change the contract, take away your guarantees, or suddenly move the goalposts. The only thing that can meaningfully affect the long-term performance of the policy is how the policy owner behaves.

To understand why that is the case, you first need to understand what the insurance company is contractually required to do, and what responsibilities belong to you as the policy owner.

When people first encounter Infinite Banking, they often focus almost entirely on the numbers. They look closely at the illustration, the projected cash values, and the internal rate of return. That makes sense because we have been taught our entire lives to judge financial decisions by performance and returns. However, Infinite Banking is not primarily a return-based strategy. It is a control-based strategy.

The real purpose of Infinite Banking is not to beat the market or chase high returns. It is about controlling how you finance the things you already need in life, deciding who controls that process, and determining who profits from it. When you focus on controlling the banking function instead of obsessing over returns, the numbers tend to work themselves out over time.

This leads to an important question. Why does Infinite Banking use life insurance at all?

The answer is simple. Infinite Banking uses life insurance because, when designed properly, a participating whole life policy has unique financing features that allow you to store money, access it without interrupting growth, and operate under written guarantees. If a better tool ever becomes available, the strategy could change. Right now, participating whole life insurance is the best tool available for this specific job.

Not all life insurance works the same way, so it is important to understand the differences.

Understanding Types of Life Insurance

Term insurance provides coverage for a set period of time, such as ten or twenty years. It is inexpensive because the likelihood of death during that time period is relatively low. Once the term ends, coverage expires, premiums increase if you try to renew, and you may not even qualify for coverage again. Term insurance does not build cash value and does not have financing capabilities. It is useful for temporary protection needs, but it cannot support Infinite Banking.

Whole life insurance works very differently. It provides coverage for your entire life. You go through underwriting once, and as long as premiums are paid, the death benefit is guaranteed to be paid. Over time, the policy builds cash value, which you can think of as equity inside the policy. The cost of insurance is spread evenly over your lifetime instead of increasing sharply as you age. This makes whole life more expensive in the early years but far more stable and predictable later in life, which is exactly when certainty matters most.

Universal life insurance attempts to separate the insurance cost from the investment portion of the policy. Early on, this can look attractive because insurance costs are low and more money appears to be invested. The problem is that the cost of insurance increases dramatically as you age. Over time, those rising costs can drain the policy’s cash value and cause the policy to collapse. This shifts risk from the insurance company to the policy owner. Infinite Banking depends on guarantees, so this type of policy does not work well for the strategy.

The type of policy used for Infinite Banking is participating whole life insurance. These policies have level premiums, guaranteed cash value growth, a guaranteed death benefit, and the ability to receive dividends. Dividends are not guaranteed, but in Canada they have been paid consistently for generations by well-established companies.

Once you understand the tool, the next step is understanding the contract.

Understanding The Life Insurance Contract

A participating whole life policy is a unilateral contract. That means once the policy is issued, only the policy owner can change their behaviour. The insurance company cannot change the terms of the contract. If you pay the premium, the company must pay the death benefit. The responsibility for investing the premiums and ensuring the money is available in the future belongs entirely to the insurance company, not to you.

Another important guarantee is that the cash value of the policy must equal the death benefit at the life insured’s age of 100. Because of this requirement, the cash value inside the policy grows every single day. This growth is contractual and does not depend on market performance.

The loan provision is another key feature. As the policy owner, you can borrow against the cash value at any time. There are no applications, no credit checks, and no approval process. The loan is secured against the death benefit, which is guaranteed to be paid. Because of this, there is no required repayment schedule. You repay the loan on your own terms. Importantly, when you take a policy loan, you are borrowing the insurance company’s money, not withdrawing your own. Your cash value continues to grow uninterrupted in the background.

As a participating policyholder, you are also entitled to share in the company’s divisible surplus through dividends. These dividends generally increase over time as more premium is paid into the policy.

Because all of these elements are guaranteed by contract, the only thing that can negatively affect the policy is how the policy owner uses it.

How Your Behaviour Can Impact Results

Premium funding matters. These policies are designed with two parts to the premium. One part is the base premium, which keeps the policy in force. The second part is a flexible premium that buys additional death benefit. This flexible premium is powerful because each dollar used often purchases multiple dollars of death benefit. Increasing the death benefit forces the cash value to grow faster over time.

If the flexible premium is not paid consistently, the policy still works, but it becomes less efficient. The illustration assumes disciplined funding. Skipping flexible premiums does not break the policy, but it does slow down growth.

Policy loans also require responsible behaviour. Loans accrue interest, just like any other loan. While the cash value continues to compound, loan interest can also compound if left unpaid. If loans are ignored for too long and interest grows faster than the cash value, the policy can lapse. This is not a flaw in the system. It is simply a reminder that control comes with responsibility. Every dollar repaid restores borrowing capacity and keeps the system healthy.

Dividend usage also plays a role. Dividends can be taken in cash, used to reduce premiums, or reinvested to purchase paid-up additions. Using dividends to buy paid-up additions is generally the most powerful option because it increases both the death benefit and the cash value, which accelerates long-term growth.

When all of this is understood, the fear disappears. The insurance company cannot change the rules. The guarantees do not vanish. The policy does exactly what the contract says it will do.

Conclusion

The performance of an Infinite Banking policy is driven by discipline, understanding, and behaviour. When managed properly, it becomes a stable, predictable, and flexible financial system that grows stronger over time.

If you already own life insurance and are considering Infinite Banking, the first step is understanding what type of policy you have and how it is structured. Not all whole life policies are designed for this purpose. If you are starting from scratch, designing the policy correctly from day one makes all the difference.

When you truly control the banking function in your life instead of renting it from someone else, your entire financial picture begins to change. That is what Infinite Banking is really about.