My answer is typically no – but there’s a better strategy most people (even experienced infinite bankers) don’t know about.
Recently, a client who’s a business owner and rancher approached me with this exact question. He had investments doing well but wanted some money set aside for his family. Another advisor had suggested dumping a large sum upfront into an infinite banking policy.
Understanding how fees work in whole life insurance policies, I advised against this approach. The biggest fees in whole life policies occur upfront, then decrease over time. This is why insurance agents love when you dump all your cash in at once – it maximizes their commissions.
The Problem With Lump Sum Funding
Let me illustrate this with a real example. I had a friend in real estate who was told to put $750,000 into a policy. The problem? About 20% of that money (roughly $150,000) would immediately go to fees. Only $600,000 would remain as accessible cash value.
Instead, I suggested spreading it out – perhaps $250,000 per year over multiple years. This way, only $50,000 would go to fees in the first year instead of $150,000. The required minimum premium would also be lower (around $50,000 instead of a much higher amount).
By year three with our policies, they typically start paying for themselves, earning more than what you put in.
The Premium Deposit Fund Hack
Now here’s the hack that most people don’t know about: the Premium Deposit Fund (PDF).
Another client asked about putting $180,000 into a policy. Rather than dumping it all in upfront and paying those high first-year costs, I suggested:
- Put the $180,000 into a Premium Deposit Fund earning 5.5% interest
- Have this fund automatically pay the annual premiums over multiple years
- Earn interest on the money while it waits to be used for premiums
This approach gives you the best of both worlds. Your money earns a solid interest rate (better than most high-yield savings accounts), and you avoid the high upfront costs of lump-sum funding.
How It Works in Practice
For my 51-year-old client in good health, here’s how the numbers worked out:
- Initial deposit: $185,000 into the Premium Deposit Fund
- First premium payment: $35,000 (leaving about $150,000 in the fund)
- Interest earned in first year: $8,200
- By year two, the fund balance grows to $158,000 before the next premium payment
This continues for six years, with the fund earning over $25,000 in guaranteed interest during this period. Meanwhile, the actual policy is also growing tax-free.
Compare this to dumping $185,000 upfront, where about $37,000 would be lost to fees immediately. With the PDF approach, the first-year cost is only about $7,000, and the interest earned ($8,200) more than covers this cost!
The Long-Term Benefits
After six years, the original $185,000 grows to $221,000 in the policy – a gain of $36,000+ that grows tax-free. The client also gets a death benefit of nearly $1 million that passes tax-free to his family.
The beauty of this strategy is flexibility. If an emergency arises, you can withdraw from the Premium Deposit Fund (though you can’t put it back). Once money moves into the actual policy, you can access it for investments or other needs.
This isn’t for money you plan to invest in real estate or other assets. It’s for funds you want to keep safe and accessible while earning more than typical savings accounts. It’s perfect for emergency funds or money you’re keeping as a safety net for your family.
Whether you’re new to infinite banking or have been doing it for years, this strategy can help your idle money work much harder for you while maintaining the security and access you need.
Frequently Asked Questions
Q: What is the Premium Deposit Fund and how does it differ from regular infinite banking?
The Premium Deposit Fund is a taxable high-yield savings account (currently paying around 5.5%) that’s connected to your insurance policy. Unlike traditional infinite banking where you might put a large sum directly into the policy, the PDF holds your money and automatically pays annual premiums over time, reducing upfront costs while earning interest on your waiting funds.
Q: Is the interest earned in the Premium Deposit Fund tax-free like in the actual policy?
No, the interest earned in the Premium Deposit Fund is taxable since it’s essentially a high-yield savings account. However, once money moves from the PDF into your actual infinite banking policy, any growth inside the policy is tax-free.
Q: Can I withdraw money from the Premium Deposit Fund if I need it?
Yes, you can withdraw money from the Premium Deposit Fund in case of emergency, but you cannot put it back in afterward. Think of it like a CD – once you take money out, that portion of the fund is closed. If you withdraw, you’ll need to pay future premiums from other sources.
Q: Who is this strategy best suited for?
This strategy works best for people who have a significant amount of money sitting in low-interest savings accounts that they want to keep safe and accessible for family needs or emergencies. It’s not meant for funds you plan to actively invest in real estate or other assets. It’s ideal for those who want guaranteed growth with minimal risk while maintaining some liquidity.
