IBC Gimmicks: Is IBC Just Wash Loans?
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In Brief:
The claim that the Infinite Banking Concept is “just wash loans” confuses a process with a product and misreads how dividend-paying whole life insurance actually works. IBC is not about rate arbitrage — it is about reclaiming control of the banking function (storage, movement, and repayment of money) within your own family economy.
IN THIS ARTICLE
- What a “wash loan” actually is
- Why the wash loan objection misses the entire point of IBC
- How non-participating whole life loans actually work
- Why dividend rates on participating policies cannot be compared to loan rates
- A real-world client example
- What IBC is actually about
This is the fourth article in a series addressing common misconceptions, misrepresentations, and over-sensationalized claims about the Infinite Banking Concept. Previous installments have addressed whether IBC policy loans must be repaid, whether IBC is just a life insurance sales pitch, and whether whole life is a bad investment. This article addresses the “wash loan” objection — an argument most common among critics of IBC and among those promoting Indexed Universal Life (IUL) as a whole life alternative.
The claim appears frequently on social media and in articles questioning IBC: policy loans are “just wash loans,” the interest charged and the interest credited cancel each other out, and therefore IBC has no real economic substance. It is a critique that sounds precise. It isn’t. Here is why.
What Is a Wash Loan?
A “wash loan” is a term used to describe a life insurance policy loan in which the interest rate charged on the loan equals the interest rate credited to the cash value pledged as collateral — resulting in a net interest effect of zero on that portion of the policy.
For example: if the policy credits 5% on the loaned amount and charges 5% interest on the loan, the interest owed and the interest earned cancel out. In a pure accounting sense, it is a “wash.”
The math looks like this:
| Interest Credit Rate | 5.00% |
| Total Cash Value | $100,000 |
| Unloaned Amount | $75,000 |
| Loaned Amount | $25,000 |
| Interest earned on unloaned amount | $3,750 |
| Interest earned on loaned amount | $1,250 |
| Total Interest | $5,000 |
| Loan Interest | 5.00% |
| Loan Balance | $25,000 |
| Interest Owed | $1,250 |
| Net Interest | $ 3,750 |
The critique is this: if the interest charged and the interest credited on the loaned amount cancel each other out, you are not actually gaining anything by using the policy — you are just moving money from one pocket to the other. Critics argue IBC is “just wash loans,” implying the strategy has no real economic substance.
This claim demonstrates two separate failures: a misunderstanding of what IBC is for, and a misunderstanding of how whole life insurance actually works.
The Wash Loan Objection Misses the Point Entirely
The wash loan objection is fixated on interest rates — on whether you are earning more than you are paying, or paying more than you are earning. This is a rate-of-return framework. IBC is not a rate-of-return strategy.
The entire foundation of the Infinite Banking Concept is reclaiming control of the banking function (storage, movement, and repayment of money). Right now, every major purchase you make routes through someone else’s financial system. Whether you pay cash or take a loan from a bank, you surrender control — either of the capital itself or of the terms. IBC proposes a different arrangement: accumulate capital in an asset you own and control, then finance the things of your life through that asset, on your own terms.
Nelson Nash’s own epiphany did not come from finding a lower interest rate. It came from having a large real estate loan with a variable rate that increased sharply in the early 1980s — and discovering that he had no power to change the terms. The bankers were in control, not him. When he used his whole life policy to assume that debt, the benefit was not primarily the interest rate differential. The benefit was getting out from under the bank’s thumb so he could act. He was back in control.
Nelson Nash wrote in Becoming Your Own Banker: “You finance everything you buy. You either pay interest to someone else, or you give up the interest you could have earned.” IBC does not eliminate the cost of financing. It internalizes it — redirecting that financial flow through a structure you own rather than a structure owned by a bank or finance company.
When you use a policy loan:
- You set the repayment terms
- You know the cost of every purchase in advance
- You can present as a cash buyer to any seller and negotiate from a position of strength
- Any interest you pay stays captured in your personal economy, not into a bank’s revenue
- The opportunity cost of the money — what it would have continued earning — is not lost
Even if the interest rate on a policy loan were identical to a bank loan — even if it were slightly higher — the control element alone changes the economics. Rate arbitrage is icing on the cake. Control is the cake.
How Non-Participating Whole Life Loans Actually Work
The wash loan claim also reveals a misunderstanding of policy mechanics — and the misunderstanding differs depending on which type of whole life policy is involved.
Non-participating whole life policies, like those sold by stock insurance companies, credit a single guaranteed rate to the cash value. This guaranteed rate is typically in the range of 2–4%. It is not a projected or aspirational number — it is the contractually guaranteed growth rate baked into the policy’s structure.
That guaranteed rate must remain intact to ensure the policy’s guaranteed death benefit is funded at maturity. If the insurance company credited zero growth on the loaned amount — simply “washing” the interest — the contract present value would never reach the guaranteed future value. The math of the contract breaks down.
Critics may argue that the wash is occurring from an accounting perspective — the interest credited in one column is canceled by the interest owed in another. But in practice, loan rates on non-participating policies are typically above the guaranteed crediting rate. One major carrier charges 2% above the guaranteed rate. Another charges a flat 8%. In neither case is the loan interest rate equal to the guaranteed crediting rate. There is no wash — the loan costs more than the guarantee credits.
Non-participating whole life is not what IBC is built on, but the mechanics are worth understanding correctly.
Why the Dividend Rate Cannot Be Compared to the Loan Rate
Participating whole life policies — dividend-paying policies from mutual insurance companies — are the foundation of properly structured IBC. This is where the wash loan objection most commonly appears, and where it most clearly fails.
The argument goes: the declared dividend rate is 5% and the loan rate is 5%, so the interest earned and the interest charged cancel out. Wash.
This argument contains a critical mathematical error: the dividend rate is not a percentage of cash value, or of total premium paid, or of any other simple policy figure. The declared dividend rate is one variable in a formula that accounts for the mutual company’s mortality experience, expense experience, and investment experience for that policy year. Dividend volume is a function of the company’s profitability distributed to policyholders as owners of a mutual company.
To say the dividend rate is 5% tells you almost nothing about what dividend a given policy will receive. You cannot multiply 5% by your cash value, your premium, or anything else and get the right number.
Here is a real client example to make this concrete:
A client pays $15,000 in base premium plus $25,000 in Paid-Up Additions to a single policy. At the first anniversary, the policy was credited a $3,000 dividend with a declared dividend rate of 5.3%.
What does $3,000 represent as a percentage of different policy figures?
$3,000 of $40,000k (total premium) is 7.5%
$3,000 of $15,000 (base premium) is 20%
$3,000 of $25,000 (cash value) is 12%
None of these match. The declared rate of 5.3% cannot be meaningfully multiplied by any part of the policy to estimate the dividend. Comparing this rate to the loan rate and calling it a wash is not financial analysis — it is a category error.
During that same first year, the client took $15,000 in policy loans and repaid $8,000. He paid $220 in interest (at a 5% loan rate at the time), was credited the $3,000 dividend described above, and his cash value increased by a total of $6,000. He also saved approximately $2,000 in negotiations on purchases he was able to make as a cash buyer.
Does that sound like a wash to you? Even if the dividend were half and the loan interest were doubled, the economics of IBC are not reducible to a simple rate comparison.
It Is About Control
The Infinite Banking Concept is not about wash loans. It is not about arbitrage. It is not about finding a rate of return that beats the market or beats your loan rate.
It is about controlling the banking function (storage, movement, and repayment of money) within your own family economy — setting the terms of every purchase, recapturing the interest that would otherwise flow to outside institutions, and building a multigenerational financial structure that serves your household rather than a bank’s balance sheet.
Critics who reduce IBC to a wash loan argument are measuring the wrong thing. They are asking “is the rate favorable?” when the right question is “who is in control?”
Ready to explore what controlling the banking function could mean for your family? Schedule a conversation with William Fullington.
Veritas non verbum venditoris.
References
Nash, R. N. (2000). Becoming Your Own Banker: Unlock the Infinite Banking Concept (5th ed.). Infinite Banking Concepts, LLC.
