When it comes to financial security and control, many people seek clarity around Infinite Banking and the role life insurance plays. The idea of using whole life insurance to gain financial control, create guaranteed growth, and build generational wealth sparks curiosity about how life insurance companies actually manage the funds. In today’s post, we’re exploring where life insurance companies invest their money.

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Many people bring misconceptions into conversations about finance, especially around life insurance. They’re often convinced by past experiences or teachings that certain financial products or strategies are inherently “better.” However, as Bruce Wehner shared recently on our podcast, one of his clients experienced a breakthrough moment—a realization about why using whole life insurance with a shorter, more limited period to pay premiums actually limited his options later. With a longer, more flexible term, he gained more control, allowing him to maximize the power of his policy long-term. Moments, like these highlight that, sometimes, truly understanding a financial concept, requires experience.

In this blog, we’ll address these essential questions:

Where Do Life Insurance Companies Invest Their Money?

Why Not Indexed Universal Life (IUL) for Infinite Banking?

Mutual Companies vs. Mutual Holding Companies: What’s the Difference?

Is the interest on a life insurance loan variable, and can it change while there’s an outstanding loan?

Where Do Life Insurance Companies Invest Their Money?Why Not Indexed Universal Life (IUL) for Infinite Banking?Mutual Companies vs. Mutual Holding Companies: What’s the Difference?Is the interest on a life insurance loan variable, and can it change while there’s an outstanding loan?Why This Matters for Your Financial FutureBook A Strategy Call

Where Do Life Insurance Companies Invest Their Money?

One common question we hear is, “How do life insurance companies invest their money, i.e. the premiums they collect?” Understanding this can add peace of mind about how your policy will perform in the long run. Due to stringent regulations, life insurance companies are required to invest conservatively to ensure they can always meet their policyholder obligations. Here’s a breakdown of their primary investment allocations:

Bonds: Approximately 85% of a life insurance company’s assets are invested in bonds, both from U.S. Treasury and corporate issuers. Bonds provide a stable and predictable income stream, essential for meeting guaranteed cash value growth.

Mortgage-Backed Securities: Many companies also invest in highly collateralized real estate mortgages. These are chosen for their relatively low risk and consistent returns.

Derivatives: Some life insurance companies hold a small portion of their assets in derivatives—about 3-4%. While derivatives can be riskier, insurance companies manage them very carefully to limit exposure.

Policy Loans: Another portion of the company’s revenue comes from loans to policyholders. Interestingly, life insurance companies appreciate the stability these loans provide. Since they hold the policy’s cash value as collateral, they reduce long-term liabilities for the company and simultaneously offer a secure, predictable return.

This blend of conservative investments enables life insurance companies to provide the guarantees that form the backbone of whole life insurance policies.

Why Not Indexed Universal Life (IUL) for Infinite Banking?

One of the first questions we often hear is: “Isn’t Infinite Banking a strategy that can be used with different insurance products, like IUL or whole life?” Let’s clear that up.

Infinite Banking is a cash management strategy. It’s a process of storing and accessing your capital, and it allows you to earn interest on your money even when you’re using it. The critical part of Infinite Banking is uninterrupted compound growth.