Is Infinite Banking a SCAM? Dave Ramsey Says So.

Have you heard Dave Ramsey’s opinion of Infinite Banking and Whole Life Insurance? He says it’s a scam, a joke, hogwash, horrendous, a pile of manure, old school life insurance done poorly, a jumbled word picture, you can’t cut through the BS, screwing people, and just doesn’t feel right.

Today, we’ll separate opinion from fact, so you can decide for yourself if Infinite Banking is a scam (or not) based on knowledge and understanding.

So if you want to find out why the wealthy and independent thinkers have been using the profound guarantees and wealth-building strategy of Infinite Banking for centuries … tune in below!

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Dave Ramsey does a lot of good for a lot of people—he helps them to get out from under crippling debt and create better money habits. However, he has famously spoken against Infinite Banking, or what we often refer to as Privatized Banking. 

Are Insurance Agents Financial Advisors?

To evaluate whether infinite banking is a scam, it’s important to understand who is giving the advice. When met with a question about whole life insurance, Dave Ramsey was not thrilled about the idea, to say the least. However, his first criticism was that the advisor who recommended insurance was only an insurance agent and not a financial advisor or planner. However, most insurance agents often have other certifications—like CFP (certified financial planner) or a Series 65 (for giving financial advice).

Just because someone is able to sell insurance does not mean they can’t sell investments or give advice. Insurance is simply one certification.

How Do Mutual Companies Work?

Infinite Banking works with mutual life insurance companies. Dave correctly identifies the difference between mutual companies and stock companies. Policy owners own mutual companies, while stockholders own stock companies.

This means that mutual companies pay profits to the policy owners, while stock companies pay profits to stockholders. Critics who call infinite banking a scam often overlook how mutual companies are structured to serve the policyholders. This is where his accuracy stops.

According to Dave Ramsey: “If you are the owner of the company and you’re also a customer of the company, and the only place the company gets money is from the customers that are owners, and they give you money from profit, by definition, that means it’s because they took too much from you as a customer. There wouldn’t have been a profit otherwise.”

This, however, is not true. The life insurance companies make profits outside of premiums paid into life insurance policies. Companies also make money from their conservative investments–many of which are corporate and treasury bonds, as well as derivatives, mortgage backed investments, and some equities. 

Policy owners receive dividends based on these profits after policy expenses. It’s not accurate to say that premiums are the only profits. His understanding of mutual companies is not accurate.

What is a Dividend, and How is it Non-Taxed?

Dave Ramsey says, “So the IRS has deemed, consequently, that mutual life insurance company dividends are not dividends, in the true sense of a dividend, that they are instead, and this is the IRS’s language ‘the refund of a deliberate overcharge.’ So they overcharge you in order to give you some money later and make you feel like you’re making money off of them. And it’s absolute hogwash. It’s a pass-through. Mathematically, it’s a pass-through. It’s the way it has to be, it’s the legal definition the freaking company, and the IRS says so.”

The government considers dividends non-taxable because they are considered a refund of an overcharged premium, but it’s important to realize that not all dividends are overcharged. The government also decides not to create a taxable event because it wants to incentivize people to have insurance.

While dividends are not guaranteed, mutual companies have paid them consistently for over a century. If you’re wondering ‘Is infinite banking legit,’ the tax treatment of dividends is part of the value proposition.

Here’s the bottom line—if dividends were only a return of premium, you would never receive more than what you paid into a given year. However, if you look at an illustration, you will eventually come to a point where your policy’s cash value far exceeds what you’ve paid into your policy total.

Are You Paying for Your Own Money?

Next, Dave raises an objection to the policy loan provision. He says, “You’re borrowing your own money, and you’re paying them interest?! This is Infinite Banking for them!”

While he raises a valid concern, policy loans are commonly misunderstood. Your cash value is accessible to you; however, it’s ideal to access it through a loan so that your account can compound uninterrupted.

Does infinite banking really work? Yes, when structured properly, it gives you liquidity and control without interrupting compound growth. When you take a policy loan, you’re actually borrowing the company’s money, using your cash value as collateral. This means that your entire cash value can continue to earn interest and dividends at its full capacity. You’re paying the company an interest rate to allow your cash value to grow uninterrupted.

Think of it like using a home equity line of credit: you’re accessing the equity in your home without selling it, allowing the property to continue appreciating while you use the funds for other opportunities. The arbitrage opportunity comes when you can earn more with the borrowed funds than you pay in interest.

What Happens When You Die?

A huge component of whole life insurance is that it pays a death benefit to your loved ones when you pass on. This tax-free death benefit creates a powerful legacy tool that goes far beyond the living benefits of infinite banking. In turn, this can help your spouse, children, or other loved ones continue to support themselves in a time of hardship.

Dave Ramsey, however, dismisses your cash value as something that “dies with you.” He claims that when the death benefit is paid out, the cash value vanishes.

The ideal way to view the cash value of your policy is that it’s the usable portion of your death benefit. Cash value is like equity in a home. Your home equity is a portion of the full value of your house, not a separate entity. If you sell your house, you don’t get your home value plus the equity. Instead, you receive a check for the sale price, which includes equity, less any remaining balance on your mortgage.

Just like with your house, when you die, your beneficiaries get the death benefit, which includes your cash value. The legacy benefit means your family receives the full death benefit income tax-free, regardless of how much cash value you’ve accessed during your lifetime.

Is Whole Life Insurance Expensive? 

Dave says, “So you’re dealing with one of the most expensive insurance products in the marketplace if you’re dealing with either of those two companies, I would stay completely away from both of them.”

People who ask whether infinite banking is a scam often don’t understand the design differences between traditional whole life and policies  optimized for IBC. We think that expensive is a poor way to describe whole life insurance, for a few reasons.

First, permanent insurance is guaranteed to pay out—death is not a possibility, it’s a certainty. Because the company knows they’ll pay out one day, your premiums cover the cost of insurance (which they use to invest). Then, you have access to part of this death benefit your whole life, with the ability to leverage it for growth.

On the other hand, term insurance is temporary coverage that rarely pays out and offers no additional benefits. You’re paying into a policy that may offer nothing other than peace of mind. Then you have investments that Dave Ramsey recommends. While there’s potential for gains, there’s also great potential for loss. Stock market returns are not a certainty, not even the 12% returns he speaks about frequently.

In that context, given the cost of whole life insurance, is it really expensive?

Summing Up What Dave Ramsey Says About Infinite Banking

We want to reiterate that Dave does a lot of good for a lot of people! Debt can be a big burden to deal with, and he helps people learn to navigate debt. However, much of the information he shares about whole life insurance and infinite banking is misguided and inaccurate.

While Dave Ramsey has called infinite banking a scam, his critique focuses on half-truths about traditional whole life insurance. The truth is, standard whole life insurance is a great product—and when structured for IBC, it becomes a powerful cash flow management system..

We think facts are extremely important, so that you can form your own opinion. After all, you belong in the driver’s seat of your financial picture. Take what you learn, separate it from opinion, and learn to apply it to your own personal economy. That’s how you’ll get results and accomplish what you’re aiming for!

Book A Strategy Call

Do you want to coordinate your finances so that everything works together to improve your life today, accelerate time and money freedom, and leave the greatest legacy? We can help!  

Book an Introductory call with our team today to learn how the family banking strategy, alternative investments, or cash flow strategies can help you accomplish your goals better and faster.

That being said, if you want to find out how our privatized banking strategy gives you the most safety, liquidity, and growth and boosts your investment returns, read our free privatized banking guide to learn more and guarantee a legacy.