Infinite Banking in Canada: How It Works, Who It’s For, and Common Myths
Introduction
You may have come across the term Infinite Banking while researching permanent life insurance or long-term financial strategies. It’s often described as a way to “become your own bank” using life insurance — but much of the information online is overly promotional, U.S.-focused, or missing important context.
In this article, we’ll explain what Infinite Banking actually is, how it works in Canada, who it may be suitable for, and where it’s commonly misunderstood — so you can decide whether it’s something worth learning more about.
This is an educational overview, not a recommendation or a one-size-fits-all solution.
What Is Infinite Banking?
Infinite Banking is a financial concept that involves using the cash value of a participating whole life insurance policy as part of a broader personal or business financial strategy.
Instead of relying solely on traditional banks for borrowing, some people choose to:
- Build cash value inside a properly designed whole life policy
- Borrow against that cash value when funds are needed
- Repay those loans over time while the policy continues to grow
The idea originated decades ago and is often associated with the Infinite Banking Concept®, but the underlying mechanics are simply how certain whole life insurance policies work.
How Infinite Banking Works in Canada
In Canada, Infinite Banking strategies typically involve participating whole life insurance, which includes both:
- A guaranteed component, and
- The potential for dividends (not guaranteed)
Here’s the important distinction:
When funds are accessed, you are borrowing against the policy, not withdrawing money from it.
This means:
- Your policy’s cash value can continue to grow
- Interest may be charged on borrowed funds
- Loan structures vary depending on the setup (policy loans vs. collateral loans)
Canadian tax rules, insurer policies, and loan structures differ from those in the U.S., which is why Canadian-specific guidance matters.
Who Infinite Banking May Be Suitable For
Infinite Banking is not designed for everyone. In practice, it tends to be explored by Canadians who:
- Have strong, consistent cash flow
- Are comfortable with long-term strategies
- Already maximize or contribute meaningfully to TFSA and RRSP
- Own a business or have complex financial needs
- Value stability and control over speculation
For these individuals, permanent life insurance may serve multiple roles: protection, estate planning, tax efficiency, and liquidity planning.
Who It Usually Is Not Suitable For
Despite how it’s sometimes marketed, Infinite Banking is not ideal for:
- People seeking short-term returns
- Anyone with tight or unpredictable cash flow
- Those needing immediate liquidity
- Anyone primarily focused on maximizing investment returns
- People uncomfortable with long-term commitments
If the primary goal is growth rather than protection, traditional investment tools may be more appropriate.
Common Myths About Infinite Banking
“It’s free money”
It isn’t. Borrowed funds accrue interest, and policy design matters significantly.
“It replaces traditional investing”
It doesn’t. For most people, it complements — not replaces — other financial strategies.
“Everyone should do this”
They shouldn’t. Suitability depends heavily on income, goals, and time horizon.
“All whole life policies work the same way”
They don’t. Policy structure, funding levels, and carrier design make a major difference.
The Role of Life Insurance
At its core, Infinite Banking relies on life insurance first — not financial engineering.
A policy should:
- Meet a genuine insurance need
- Be designed conservatively
- Align with long-term objectives
- Be explained clearly, without exaggerated claims
When those conditions aren’t met, the strategy often disappoints.
A Balanced Perspective
Infinite Banking is one way some Canadians choose to use permanent life insurance as part of a broader financial plan. It can be effective in the right circumstances — and inappropriate in others.
The most important factor isn’t the concept itself, but whether the strategy fits your life, your cash flow, and your long-term goals.
Education always comes before implementation.
Final Thoughts
If you’re exploring permanent life insurance, estate planning, or long-term financial flexibility, learning how these strategies work can be valuable — even if you ultimately decide they aren’t right for you.
Clear understanding leads to better decisions.