Life insurance

Using Life Insurance to Build Wealth: An Honest Look at Cash Value, Infinite Banking, and Who It Is Really For

The internet has rediscovered cash value life insurance. Some of what it says is true.

By Caleb Bullard · September 8, 2026 · 9 min read

The short answer. Permanent life insurance can build cash value that grows tax-deferred, can be borrowed against, and is not counted on the FAFSA, and for a small set of people with a permanent insurance need and money left over after maxing tax-advantaged accounts it is a reasonable conservative asset. It is not a substitute for term coverage a family cannot otherwise afford, it is expensive in the early years, and most of the online 'infinite banking' pitch skips the part where a policy has to be designed for cash value on purpose. Before buying one, ask what job the policy is doing; before keeping one, get it reviewed.

Searches for “using life insurance to build wealth” grew more than 1,000 percent in a year, according to Empathy’s 2026 analysis of search data. Most of that traffic comes from short videos about “infinite banking” and “being your own bank.” I sell permanent life insurance. I also review a lot of policies that were sold by those videos. Here is the honest version.

What cash value actually is

A permanent policy, whole life or universal life, charges more than the cost of insurance in the early years and sets the excess aside inside the contract. That is the cash value. In whole life, part of its growth is guaranteed by contract and part comes from non-guaranteed dividends. It grows tax-deferred. You can borrow against it, usually without a credit check, and the loan does not have to be repaid on a schedule, though interest accrues and an unpaid loan reduces the death benefit. If you surrender the policy, the cash value above what you paid is taxable.

Those are real features. Two more are true and often left out: it takes years, frequently seven to ten or more, before the cash value catches up to the premiums paid, because the early costs are real. And it is a conservative asset. Guaranteed growth is modest; dividend history is better but not guaranteed.

What infinite banking claims

The concept, popularized by a book decades ago and by social media recently, is to overfund a dividend-paying whole life policy, borrow against the cash value to buy things you would otherwise finance, and repay the policy loan, so your money is “working in two places at once.” Mechanically that is accurate. The cash value continues to earn while a loan is outstanding, and policy loans have advantages over bank loans.

What the pitch skips is that it only works well if the policy is designed for it, with a paid-up additions rider carrying most of the premium and a relatively small base face amount, so cash value builds early. A standard whole life policy sold on death benefit does not behave this way, and the buyer finds out in year five when the cash value is a fraction of what the video implied.

A mother asked me to review policies she had bought for her children. She believed she was putting money into policies designed to accumulate cash value that could eventually help them. When I read what she actually owned, the policies had been structured primarily for death benefit. She was doing nothing wrong. She was faithfully paying every month. The product simply was not aligned with what she was trying to accomplish.

We restructured around her real objective. She was thankful, mostly because otherwise she would have kept funding something for years without knowing it was doing the wrong job.

A real client situation, details changed

Who it fits

In my practice, cash value life insurance earns its place for a fairly specific person: someone with a permanent need for a death benefit (a special-needs dependent, estate liquidity, a business partner, a legacy goal), who has already funded the tax-advantaged accounts available to them, who has money left over that they want in a guaranteed, conservative, tax-advantaged bucket, and who will keep the policy for decades. For that person, it is a good tool. Business owners who want a guaranteed asset alongside market risk fit here. So do some families planning for college, because the cash value is not reported on the FAFSA, though that is a feature, not a reason to buy on its own.

Who it does not fit

A young family that needs $750,000 of protection and can afford $60 a month. That family needs term, and a whole life policy at $60 a month buys them a small fraction of the protection. A cash value policy sold instead of adequate term coverage is the most common mistake I see, and it is usually sold with the wealth-building language. Coverage first. Accumulation after.

Questions to ask before you buy or keep one

What job is this policy doing: protection, accumulation, or both? Show me the illustration built for that job.
What is the guaranteed cash value in years 5, 10 and 20, separate from the non-guaranteed projection?
How much of the premium is going to paid-up additions?
What is the policy loan rate, and is it fixed or variable?
If I stop paying in year eight, what happens?

If the person selling it cannot answer these clearly, that tells you something.

What I would do

Get the protection right first with term. If there is a permanent need and money left over after the retirement accounts, consider a whole life policy designed for cash value, from a mutual carrier with a long dividend history, and plan to keep it for life. If you already own one and are not sure which job it is doing, have it reviewed. Half of the reviews I do end with “keep it.” The other half end with someone finally understanding what they own.

Questions people ask

What is infinite banking?

A marketing name for a strategy that overfunds a dividend-paying whole life policy, then borrows against the cash value for purchases or investments and repays the loan to the policy. The cash value keeps earning while the loan is outstanding. It works as described only when the policy is designed with paid-up additions to build cash quickly, and it is slow: most policies take years before cash value exceeds premiums paid.

Is cash value life insurance a good investment?

It is a conservative, tax-advantaged asset with guarantees, not a high-return investment. Guaranteed cash value growth in whole life is modest; non-guaranteed dividends have historically added to it. Costs in the early years are high. For most families, term insurance plus retirement accounts comes first; cash value makes sense after those are funded and when there is a permanent need for the death benefit.

Does life insurance cash value count on the FAFSA?

No. The cash value of life insurance and qualified retirement accounts are not reported as assets on the FAFSA. Some private colleges that use the CSS Profile do ask about it. That is one reason cash value policies appear in college-funding conversations; it is not a reason to buy one on its own.

What is the difference between a policy built for death benefit and one built for cash value?

The same whole life contract can be designed two ways. A death-benefit design maximizes the face amount for the premium; a cash-value design uses paid-up additions riders and a smaller base face amount so more premium goes to cash value early. If your goal is accumulation and the policy was not designed for it, the illustration will show it years later than you expected.

Sources

This article is general education, not a recommendation to buy or replace any policy. Replacing a life insurance policy can have costs and tax consequences and should be evaluated with a licensed professional. Not tax or investment advice.