Everyone wants to be their own bank. Read the terms first

The pitch goes like this:

Sure.

Look. In a real trade, two separate markets misprice the same thing. You buy cheap in one. You sell high in the other. You keep the gap. That is how a spread works.

Infinite Banking has no gap. The insurance company sets the dividend rate your cash value earns. The same insurance company sets the interest rate on the loan it gives you. One company. Both prices. Every year, the board picks the numbers.

I mean, imagine a restaurant that also signs your paychecks. The menu says steak costs $50. Your pay stub says you earned $45. You are short every single meal. And the restaurant can change both numbers in January.

That is not a trade. That is a customer loyalty program.

Here is where the pipes get interesting.

You pay $30,000 in premium. The agent earns a first-year commission. On whole life, that commission runs around 80% of what you paid. That is $24,000. To the agent. In Year 1.

Your cash value after that first $30,000? Maybe $2,000. Maybe $6,000 if you are lucky. The rest went to the agent, the cost of insurance, and admin fees. It got eaten before cash value even formed.

The agent's clawback window? One to two years. After that, the money is his. Forever. No matter what happens to your policy in Year 5 or Year 15 or Year 30. He got paid. You got a receipt.

Sure.

Quick beat on the sales pitch. The agent shows you a chart. It projects your cash value growing for 30 or 40 years at today's payout rate. The chart looks fantastic. It always does.

The rate is not guaranteed. The insurer can cut it every January. MassMutual cut its rate in 2020. Northwestern Mutual cut in 2023. The chart assumes the weather never changes. The weather always changes.

You borrow against the policy. Year after year. You spend the money. You never pay the loans back. The pitch says you don't have to. And technically, right, you don't.

But the loans stack up. The interest compounds. At some point, the total loans and interest eat through your cash value. The policy lapses. It dies.

Now the fun part.

The policy collapses. The IRS looks at the forgiven loans plus any gain. Under IRC §72(e), all of it counts as taxable ordinary income. All of it. In one year.

So you borrowed $400,000 over 20 years. You spent it. It is gone. The policy collapses. The IRS sends you a bill for taxes on $400,000 in "phantom income." You owe six figures on cash that left your hands a decade ago.

The agent who sold you the policy? He cashed his check 19 years before the tax bill arrived. No clawback. No liability. No phone call to make.

The timing is the whole game. He gets paid in Year 1. You get the bill in Year 20. The gap between who profits and who pays is wide enough to park a boat in.

Your money did work in two places at once. Both places belonged to the insurance company. The company set the rate you earned. The company set the rate you paid. The agent took his cut before your cash value existed. And the tax bill showed up after everyone else left the building.

Nobody in this chain, not the agent, not the insurer, has a reason to slow it down. The government wrote the rules. People read them. And here we are.

This is what happens when one company writes both sides of the receipt.

Right.