Infinite Banking | overview and sharia issues

Since the interest genie is already out, can we pay interest to ourselves?

Imagine a genie grants you three wishes and you come up with these:

1. I want to borrow money but don’t want to pay interest to banks. If anything, I’d rather pay interest to myself than anyone else!
2. I want to save money but don’t want to pay taxes on the savings. Not even after I die. Meaning, I don't want my family to pay taxes on money they inherit from me.
3. I want to ensure my family is financially comfortable when I die.

And the genie responds:

‘O that's just one wish my stupid master, I hereby grant you the Infinite Banking System.’ yoohoo.

Yes, Infinite Banking System — if played right — packs a lot of punch. First, it offers tax advantages not just for you, btu for your heirs too in saving them estate taxes. Second, It guarantees a minimum interest rate n sometimes even dividends. So as opposed to investment where you have chances of both winning or losing your capital, here, your capital is guaranteed plus interest. Good for you, bad for the economy. Third, you have ownership n control over your cash component (explained below) so you don’t have to beg banks to lend you. You lend your own self and pay interest to yourself.

Cut it short:

IBS is a financing (read borrowing money) strategy that uses whole (not term) life insurance policies as a prop.

How did IBS come into being?

Nelson Nash designed this strategy in the last century when he was knee deep into debt and was desperate to borrow some cash.

How IBS works:

Here’s a simplified overview of how IBC (Infinite Banking Concept) works:

1. Whole Life Insurance Policy: you set up a carefully designed whole life insurance policy. (being mindful of the caveats mentioned here). Why whole? why not term life insurance? cuz in term life insurance, you don’t build any cash value, i.e., no portion of your premium payments gets saved as explained in Pt2 below. Your heirs get cash when you die as death benefits.
2. Cash Value Component: As you — the policyholder — pay premiums (e.g., $1000/mo), a portion of those payments (eg, $300/mo) goes into the cash value component of the policy. This cash value can be accessed and used while the policy is still active by you. You’re the boss and have control.
3. Borrowing Against Cash Value: Imagine those $300/mo add up to to $9000. Now, instead of taking out a loan from a bank, you can borrow this $9000. at interest? of course. Who sets the interest rate? Insurance company. What if you’re not able to pay off your loan? Your death benefit payable to beneficiaries (your heirs after your die) is reduced.

IBS and Sharia: issues to explore

1. Since insurance is a key component of IBS in most cases, if insurance isn't allowed in sharia based on gharar, IBS isn't allowed either.
2. Does it make any difference in ruling whether a person is paying interest to an outsider or oneself? Given that riba/usury is prohibited categorically in express terms.
3. The cash value component of a whole life insurance policy is owned by the policyholder, so for all practical and perhaps legal reasons as well, a person is borrowing his own money. However, this policy loan is almost always accompanied by interest and the interest rate is decided by the insurance company and obligated on the policyholder. So, can this interest be considered as an unjust tax and hence allowed, instead of being treated as interest and prohibited?