Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Benjamin Carr was a licensed insurance agent in Georgia and has two years' experience in life, health, property and casualty coverage. He has worked with State Farm and other risk management firms. He is also a strategic writer and editor with a background in branding, marketing, and quality assurance. He has been in military newsrooms — literally on the frontline of journalism.

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Reviewed by Benji Carr
Former Licensed Life Insurance Agent

UPDATED: Mar 31, 2021

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The Facts of Life

  • Cash flow banking is a way of creating your own “bank” using a permanent life insurance policy.
  • The best way to start cash flow banking is to set up a whole life insurance policy.
  • Work with a cash flow insurance specialist to set up a policy that can be tailored for cash flow banking.

If you’re looking for a way to protect and grow your wealth while reducing risk, cash flow banking may be the solution for you.

With cash flow banking, you can use every dollar twice – by using it for expenses, while still earning interest through your whole life insurance policy. Continue reading to learn more about the advantages of this strategy and how to implement it for yourself.

If you need help finding the right life insurance policy for you, enter your ZIP code above to compare quotes from life insurance companies in your area.

What is Cash Flow Banking?

Cash flow banking is a way of creating your own “bank”. It is most often utilized with whole life insurance or another type of permanent life insurance policy. With this method, you can borrow against the cash value of your life insurance policy.

Benefits of Cash Flow Banking

Some of the main advantages of cash flow banking are:

  • You can earn interest while borrowing from your policy. For example, if you have a life insurance policy for $40,000, and you borrow $10,000, you will still earn interest on the full $40,000.
  • There is flexibility in paying back the loan. If you can’t or don’t pay back the loan, the loan and interest will simply be taken from your death benefit.
  • Funds are available at any time with no loan application or credit check.
  • Interest rates are lower than getting a regular loan.
  • The income from borrowing is tax-free.
  • The value of your policy does not fluctuate with the market.

How Cash Flow Banking Works

Cash flow banking is not a way of borrowing from your own life insurance policy. Instead, you borrow from the life insurance company’s general fund, and your life insurance policy is used as collateral.

If you do not pay back any of your loans, any loans plus the interest is taken out of the death benefit when you pass. The cash value of your loan (not including interest and dividends) is returned to the insurance company.

The best way to start cash flow banking is to set up a whole life insurance policy. While these premiums will be higher than those of term life insurance, you can’t accumulate cash value with term life insurance. Higher premiums is what will help you build the cash value of your policy.

When you set up your whole life insurance policy, you should get one that pays dividends and add a paid-up addition rider. While this will further increase the premiums, most of it will go toward your cash value instead of your death benefit.

The more of your premium that goes toward your cash value, the more you will have the ability to borrow from your policy. You may borrow from your policy for expenses such as:

  • Purchasing a home
  • Purchasing a car
  • Starting a business
  • Retirement income
  • College tuition
  • Investing
  • Vacations

You can use the cash flow banking method for just about any purchase or financial needs.

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History of Cash Flow Banking

Cash flow banking originally began as a solution to the seasonal incomes of farmers. The farmers would have to use the income from the harvest to cover as many of their expenses as possible, including their mortgage and any purchases they had to make for the next harvest season.

Many of them would take out life insurance policies in order to use the death benefit to pay off their mortgage after they passed, so the next family generation could continue running the farm.

Insurance companies, seeing this as a low-risk opportunity, would loan the farmers money against the cash value of their insurance policies to help them cover expenses until they received income from the next harvest.

Cash flow banking evolved when people started moving into cities to help them fund other ventures, such as starting businesses.

The system gained popularity in 1980 after Robert Castiglione published his book LEAP – The Lifetime Economic Acceleration Process: The Key to Financial Success.

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Where Can I Get Cash Flow Insurance?

While there are a ton of different insurance companies that offer whole life insurance policies, they may not be the best fit for cash flow banking.

Here’s a list of the top 20 whole life insurance companies by market share.

Top 20 Whole Life Insurance Companies by Market Share

Top 20 Whole Life Insurance Companies by Market Share
CompaniesDirect Written PremiumMarket Share
Northwestern Mutual$10,517,115,4526.42%
Metropolitan Group$9,821,445,9536.00%
New York Life$9,925,848,3005.68%
Prudential$9,128,805,0605.57%
Lincoln National$8,769,303,7745.36%
MassMutual$6,854,713,0574.19%
Aegon$4,809,856,6502.94%
John Hancock$4,640,905,0172.83%
State Farm$4,633,004,9632.83%
Minnesota Mutual Group$4,422,100,0282.70%
Guardian Life$4,033,541,4012.46%
Pacific Life$3,755,606,2132.29%
Nationwide$3,364,808,1812.05%
AIG$3,336,397,4532.04%
AXA Equitable$3,051,945,8491.86%
Voya Financial$2,526,828,2681.54%
Brighthouse Financial$2,519,733,1161.54%
Protective Life$2,403,640,8251.47%
Primerica$2,375,786,1901.45%
Sammons Enterprises$2,321,529,7221.42%
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Seeking out an insurance agent may be helpful, but some agents don’t have their securities license. Therefore, they may just tell you to overfund a life insurance policy.

The best way to find a whole life insurance policy that can be tailored for cash flow banking is by working with a cash flow insurance specialist.

Summing It Up

Cash flow banking can be a great way to gain a source of income without having to pay taxes, fill out loan applications, or even worry about paying the loan back.

Depending on your financial situation and needs, cash flow banking may be a solution to helping you grow your wealth and achieve your goals.

In order to find the best life insurance policy for you, compare quotes today by filling out our ZIP code and using our free comparison tool today.