An infinite banking break-even worksheet using your own numbers

Whether an overfunded whole life policy "pays off" is an arithmetic question before it is a philosophical one. Three numbers decide it: what you put in, what you can get out, and what the same money would have done somewhere else. This worksheet lets you fill in those numbers from a real proposal and find the year when, if ever, the policy catches up.

It does not tell you whether to buy. It tells you what you would have to believe for the policy to come out ahead, so you can judge whether that is reasonable. The example uses invented round numbers. Replace every one of them with figures from your own policy ledger, and have a fee-only planner check the result. For the claims behind the strategy see infinite banking claims weighed fairly, one assertion at a time, and for the mechanics see infinite banking with whole life: how it works and the catch.

What you need before you start

Gather these from the insurer or agent, in writing.

1. A year-by-year ledger (an policy illustration) with three columns: premium paid, guaranteed cash value, and projected cash value. Ask for the projected column both at the current dividend scale and at a lower one. See how to read a life insurance illustration.
2. The loan terms: the loan interest rate, whether it is fixed or variable, and how the insurer treats borrowed cash value for dividends.
3. The death benefit in each year.
4. Your alternative. What would you do with the same dollars: pay down debt, save in a taxable account, fund a retirement plan? Pick a single honest return assumption, after tax, and say it is an assumption.

If any item is missing, the worksheet is not ready to run. A proposal that will not provide a ledger by year is itself information.

Part A: premiums against cash value

This part answers: in which year does cash value first equal the premiums paid?

• Line A1: yearly premium. $______
• Line A2: cumulative premiums at year n = A1 x n. $______
• Line A3: cash value at year n, from the ledger (use the guaranteed and the projected column separately). $______
• Line A4: gap = A3 minus A2. Negative means you have paid in more than you can get out. $______

Worked example (hypothetical). Say a policy requires $12,000 a year, and the projected ledger shows these cash values.

In this invented ledger, cash value passes cumulative premiums in year 6. Now do the same with the guaranteed column and the lower-dividend projection. In many real policies the guaranteed column crosses much later. If the answer to A4 is negative in the years you might need the money, that is the cost of early access, and it is the first number to compare with the loan interest you might save.

Part B: the cost of borrowing

This part answers: what does a loan from the policy cost compared with the alternative?

• Line B1: policy loan interest rate. ______ %
• Line B2: credit or dividend rate that the borrowed cash value still earns. Ask the insurer. If it earns nothing extra, write 0. ______ %
• Line B3: net cost of borrowing from the policy = B1 minus B2. ______ %
• Line B4: rate for the alternative loan you would otherwise take (bank, credit union, home equity). ______ %
• Line B5: yearly advantage per dollar borrowed = B4 minus B3. If negative, borrowing from the policy costs more. ______ %
• Line B6: amount you expect to borrow and keep outstanding. $______
• Line B7: yearly savings = B5 x B6. $______

Worked example. Say the loan rate is 6% (B1), the borrowed value still earns a 5% credit (B2), the bank would charge 8% (B4), and the owner borrows $30,000 (B6).

• B3 = 6% minus 5% = 1%.
• B5 = 8% minus 1% = 7%.
• B7 = 0.07 x $30,000 = $2,100 a year.

If the insurer uses a design where the borrowed portion earns less, B2 falls and B7 shrinks. At a 3% credit, B3 would be 3%, B5 would be 5%, and B7 would be 0.05 x $30,000, or $1,500. If the loan rate is variable and rises, B1 changes. Run the line at least three ways. The policy loan calculator can model the loan balance if interest is not paid.

Two cautions. This calculation assumes you would really have borrowed from the bank at B4, which many owners would not; if you would have paid cash, there is no savings to count. And an unpaid policy loan grows, so repeat the lapse check from life insurance policy loans: how they work and what they risk before you rely on B7.

Part C: the growth you give up

This part answers: what would the same premiums be worth in your alternative?

The standard formula for equal yearly deposits is: value = deposit x ((1 + r) to the n minus 1) / r, where r is your assumed return and n is the number of years. Use the factor from this table, which is just that fraction worked out, then multiply by your yearly premium.

• Line C1: your assumed after-tax return. ______ %
• Line C2: factor from the table (or compute it). ______
• Line C3: alternative value = A1 x C2. $______

Worked example. Using the same $12,000 a year and a hypothetical 3% after-tax return, the factor for 10 years is 11.464, so C3 = $12,000 x 11.464 = $137,568 (rounded; the exact figure is $137,567). For 20 years the factor is 26.870, so C3 = $12,000 x 26.870 = $322,440 (rounded).

That return is only an assumption. The right figure for you may be higher or lower, and an investment return is not guaranteed. Report the worksheet at two or three rates and see how much the answer moves.

Part D: the break-even year

Now put the pieces together for each year n.

• Line D1: policy side = A3 (cash value) + cumulative savings (B7 x years the loan was outstanding).
• Line D2: alternative side = C3 for that year.
• Line D3: difference = D1 minus D2.

The break-even year is the first year D3 turns positive and stays positive.

Worked example. Say the owner takes the $30,000 loan at the start of year 6 and keeps it outstanding. Cumulative savings by year n are $2,100 x (n minus 5). At 3%, the results are:

The break-even is year 8, counting the loan savings. Without the loan savings, the cash value alone at year 20 is $313,000 against $322,444, a shortfall of $9,444, so the policy would not break even on savings alone in this example.

Now change one assumption. At a 4% return, the 20-year factor is 29.778 and the alternative is $12,000 x 29.778 = $357,336 (rounded). The policy side is still $344,500, so the difference is about minus $12,800, and the policy has not broken even at year 20. The conclusion flipped on one percentage point. That sensitivity is what the worksheet is for.

Part E: what the comparison leaves out

A fair worksheet lists what the numbers above do not capture.

• The death benefit. The policy provides one and the alternative does not. If you would otherwise buy term coverage, put the yearly term premium in a line E1 and subtract its cumulative cost from the alternative side. Subtracting it lowers the alternative side, which helps the policy, because the alternative then has to pay for protection too. Be consistent: if the death benefit is not something you need, leave this line out and say so.
• Taxes. Investment gains may be taxed each year or at sale. Policy growth is tax-deferred, and loans are generally not taxed while the policy stays in force and is not a MEC. Use after-tax returns on both sides.
• Risk. Cash value has a guaranteed floor; an investment account does not. If the guaranteed column is much lower than the projected one, the policy side carries uncertainty too.
• Liquidity in the early years. Part A shows a negative gap in the early years. If you might need the money then, the true cost is that gap.
• Behavior. Some people save more reliably through a required premium. That has value, but it cannot be estimated in a worksheet.

Part F: three stress tests

Run D3 again with each of these, and write down whether it stays positive.

1. Guaranteed column only, replacing A3.
2. Lower dividend scale, for example the projection the insurer shows at a reduced scale.
3. Higher loan rate, raising B1 by two points on a variable loan.

If the result turns negative under any of them, you now know what must go right. A proposal that holds up under all three has a margin of safety. A proposal that survives only on the highest projection is a bet on the dividend scale.

A second example: the owner who never borrows

Not everyone uses the loan feature, so run the worksheet once with B7 set to zero. Using the same ledger, the policy side is just the cash value. At year 20 that is $313,000.

• At a hypothetical 3% alternative return, C3 is $12,000 x 26.870 = $322,440, so the policy trails by about $9,440.
• At 2%, the factor is 24.297 and C3 is $12,000 x 24.297 = $291,564, so the policy leads by about $21,440.
• At 4%, C3 is $357,336 and the policy trails by about $44,340.

So for this owner the policy is ahead of the alternative only if the alternative earns roughly 2.8% or less after tax, over a twenty-year span, before counting the death benefit. That does not make the policy a poor purchase. It means the case rests on the death benefit, the guarantees, the discipline of the premium and the borrowing feature, and not on beating an alternative's return. People who buy whole life for those reasons are making a coherent choice. People who buy it expecting it to outgrow a diversified portfolio are relying on a claim this arithmetic does not support.

Errors that make worksheets lie

• Mixing the guaranteed and projected columns. Use one column per run and label it.
• Forgetting that a loan changes the ledger. A ledger that shows cash value before any loan does not show what remains after borrowing and unpaid interest. Ask for an in-force illustration with the loan included.
• Counting savings that need a loan you would not take. B7 applies only if the alternative loan was real.
• Comparing pre-tax and after-tax numbers. Put both sides on the same footing.
• Stopping at the year the policy looks good. Check that the lead survives to the end of the planning period, because a variable loan rate or a cut in the dividend scale can erode it later.
• Ignoring the first-year gap. Part A's negative numbers are real money you cannot reach without penalty. A short time horizon is the main reason the strategy fails for people who needed cash early.
• Treating the agent's projection as the plan. The projection is a hope, the guarantee is a promise.

The blank worksheet to copy

Write these down once, and fill the right-hand side from your own ledger.

1. Yearly premium (A1): ______
2. Years of premium paid (n): ______
3. Cumulative premiums (A2 = A1 x n): ______
4. Cash value, guaranteed (A3g) and projected (A3p): ______ / ______
5. Gap (A4 = A3 minus A2), each column: ______ / ______
6. Loan rate (B1), credit on borrowed value (B2), net cost (B3 = B1 minus B2): ______ / ______ / ______
7. Alternative borrowing rate (B4), yearly advantage (B5 = B4 minus B3): ______ / ______
8. Amount borrowed (B6), yearly savings (B7 = B5 x B6): ______ / ______
9. Assumed after-tax return (C1), factor (C2), alternative value (C3 = A1 x C2): ______ / ______ / ______
10. Policy side (D1 = A3 plus B7 x years borrowed), difference (D3 = D1 minus C3): ______ / ______
11. Stress-test results, three lines: ______ / ______ / ______

Getting honest inputs

The worksheet is only as good as its inputs, and the inputs usually come from the party selling the policy. A few habits keep that honest. Ask for the ledger as a file you can keep, not a screen shown across a table. Ask for the same design at two premium levels, so you can see how much of the result depends on how hard the policy is funded. Ask the agent to fill in Part A alongside you, in front of you, and notice which questions are easy to answer and which are deflected.

It also helps to run the worksheet before you meet anyone, using a generic assumption, so that the proposal is measured against a number you chose and not one you were given. If you are unsure which return to assume for Part C, use a low and a high figure rather than a single guess, and read the result as a range.

How to use the result

If D3 is negative for most reasonable assumptions, the premium dollars probably do more somewhere else, and any benefit from the strategy must come from protection or discipline. If D3 is positive but only after the loan savings in Part B, the policy works if you really use the loan and keep it healthy. If D3 is positive on the guaranteed column, the margin is larger. Bring the filled-in worksheet to a fee-only planner who is not paid on the sale; a worksheet with real numbers is far more useful to them than a general question.

Key takeaways

• Run four things: premiums against cash value, the net cost of borrowing, the growth you give up, and the year they cross.
• The net cost of borrowing is the loan rate minus what the borrowed cash value still earns, and the savings exist only if you would really have borrowed elsewhere.
• Small changes in the assumed alternative return can flip the break-even; test two or three rates.
• Stress the result with the guaranteed column, a lower dividend scale and a higher loan rate before trusting it.
• The death benefit, taxes and risk are outside the arithmetic and need to be weighed separately, ideally with independent advice.