IUL for Church Members: What to Know About Faith-Based IUL Pitches

What are “Kingdom Banking” and faith-based IUL pitches?

“Kingdom Banking” and “Infinite Banking God’s Way” aren’t insurance products. They’re names for a money strategy.

The strategy usually goes like this:

• You buy a permanent life insurance policy and pay in more than the minimum premium.
• The policy builds cash value over time.
• You borrow against that cash value instead of borrowing from a bank.
• You pay the loan back to the policy, and the cycle repeats.

The faith-based version adds religious language, such as stewardship, getting out of debt or leaving a legacy. Those are good goals, but they don’t tell you how the policy works.

The idea comes from a strategy called Infinite Banking. It was built around dividend-paying whole life insurance, not IUL. Chapter 6 of my IUL Playbook explains why it doesn’t carry over well to IUL.

Three things to keep separate

When you hear a pitch like this, it helps to split it into three parts:

1. The product. This is the insurance policy itself, usually an IUL. Its rules are written in the contract.
2. The strategy. This is the plan for using the policy, such as borrowing from it to pay for things or to create retirement income.
3. The framing. This is the religious or faith-based language used to present it.

Only the first one is a legal contract. The strategy is a plan someone suggests. The framing is how they describe it.

The insurance doesn’t change because of religious framing

An IUL presented at a church event is still an IUL. The insurance company writes the contract, and the charges, crediting rules and guarantees are all in it. Calling it a faith-based plan doesn’t change how the policy is taxed or how its cash value grows. Those come from the contract and from tax law.

So ask the same questions anyone should ask about an IUL. Which insurance company issues it? What does the contract guarantee? What does it cost to keep the policy going?

How an IUL actually works

An IUL is a type of permanent universal life insurance. It has a death benefit and a cash value.

Here’s the basic idea:

• You pay premiums into the policy.
• The insurance company takes out policy charges and the cost of insurance.
• What’s left builds cash value.
• The company credits interest to the cash value using a formula tied to a stock market index, such as the S&P 500.

You generally aren’t invested in the index. It’s only used to figure out how much interest the company credits.

The policy’s crediting terms limit how much of the index gain you get. Depending on the policy, these can include:

• a cap, the most the policy will credit for a period;
• a participation rate, the share of the index gain that counts;
• a spread, an amount subtracted before interest is credited.

An IUL may also have a floor on index crediting, such as 0%. A floor means a bad year for the index won’t produce a negative interest credit. It does not mean your cash value can’t go down. Policy charges and the cost of insurance still come out. In a year with little or no interest credited, those charges can make your cash value drop.

The insurance company may also be able to change some crediting terms or charges within limits set by the contract. Your contract spells out those limits.

IUL isn’t the same as variable universal life

Variable universal life (VUL) is a different product. Its cash value goes into investment accounts, and it can involve registered securities. If someone talks about the two as if they’re the same thing, ask which one you’re actually being offered.

What an illustration does and doesn’t guarantee

Most IUL sales use an illustration. That’s a set of pages, usually with long tables, showing how the policy might perform over many years.

Illustrations have consumer-protection rules. The National Association of Insurance Commissioners (NAIC) wrote a model rule for them, and state insurance departments oversee the companies that use them.

An illustration shows two kinds of numbers:

• Guaranteed values. These are what the contract promises under the policy’s guarantees.
• Non-guaranteed values. These are based on assumptions, such as the interest rate the company might credit and its current charges.

The big numbers in a sales presentation are usually the non-guaranteed ones. They aren’t promises. If the policy credits less than assumed, or the charges are higher, your results will be lower.

Policies tied to an index have extra illustration rules. The NAIC adopted them in 2015, a guideline called AG 49. For policies sold on or after December 14, 2020, AG 49 was replaced by AG 49-A. AG 49-A was revised in 2023 to tighten illustration limits, and again in 2026 to improve consumer disclosures.

Read the guaranteed values first, and ask to see the policy run at a lower interest rate than the one shown. Keep a copy, too. When a policy is sold with an illustration, you and the agent both sign it, and it goes to the insurance company with your application.

What “tax-free income” really means

“Tax-free retirement income” is one of the most common IUL selling points.

The death benefit. Life insurance paid to a beneficiary because the insured person died generally isn’t taxable income. There are exceptions, such as when the policy was transferred for cash or something else of value. Any interest paid on the proceeds is taxable.

Loans. The “tax-free income” in most IUL pitches comes from borrowing against the policy. As long as the policy stays in force and isn’t a MEC (explained below), policy loans generally aren’t taxed when you take them.

Surrender. If you cash in (surrender) a policy, IRS Publication 525 says you must include in income any proceeds that are more than your cost in the policy. In most cases, your cost is the premiums you paid, minus certain amounts such as refunded premiums, dividends or unrepaid loans that weren’t included in your income.

So it isn’t true that every dollar gets taxed. Generally, it’s the amount above your cost. But when a policy with a loan is surrendered or lapses, the loan becomes part of the tax math. You can owe tax even if you get little or no cash back.

MECs. If too much money goes into a policy too fast in its first seven years, it can fail a federal test and become a modified endowment contract, or MEC. A MEC is still life insurance, but money comes out under different tax rules. Withdrawals are generally taxed with the earnings coming out first, and loans can be treated like withdrawals. Some amounts may also face a 10% additional tax. Infinite Banking-style plans usually call for paying in as much as possible, so ask whether the plan is designed to stay out of MEC territory.

This is general information, not tax advice. Tax results depend on your policy and your situation. Talk with a tax professional before you rely on any tax claim.

Policy loans, lapse and surrender

These strategies depend on borrowing from the policy for years while it stays in force. Here’s what that means.

• Loans charge interest. If you don’t pay the interest, it may be added to the loan balance.
• Loans reduce what your family gets. An unpaid loan is generally subtracted from the death benefit.
• Loans can cause a lapse. If the loan and the policy charges grow larger than the cash value can support, the policy can lapse unless you pay more in. A lapse ends your coverage, and it can also create a tax bill, as explained above.
• Surrender can cost you. Many policies have surrender charges in the early years. Check your contract to see how much you’d get back if you cashed it in.

You can read more in my guide to borrowing against cash value.

Questions to ask before you buy

You don’t have to decide at the event. Ask for the illustration and the details in writing, and take them home to review. These questions will help:

• Which insurance company issues this policy, and is it an IUL, whole life or something else?
• Can I see the guaranteed values, and the policy run at a lower interest rate?
• What are the cap, participation rate and any spread? Can the company change them?
• What are the policy charges, especially in the early years?
• How much do I need to pay each year, and for how long, to keep the policy from lapsing?
• Are there surrender charges? For how many years?
• Is this plan designed to avoid becoming a MEC?
• How do the loans work, and what happens with taxes if the policy lapses or I surrender it with a loan?
• Are you licensed to sell life insurance in my state, and how are you paid on this sale?

When simpler life insurance may fit better

An IUL can be appropriate in some situations. But it’s more complex than term life or traditional whole life. It works best when you understand the guarantees, the assumptions, the charges and how much you’ll need to pay in over the years.

Start with what you need the insurance to do:

• Protect your family while you’re working, or cover a mortgage. Term life insurance covers a set number of years and is often the lowest-cost way to get a large death benefit. See my term life insurance guide.
• Lifelong coverage with set premiums. Traditional whole life has level premiums and guaranteed cash value.
• Paying for a funeral and final bills. Final expense insurance is a smaller whole life policy built for that job. See my final expense insurance guide.
• Saving for retirement. Compare an IUL with other ways to save, such as retirement accounts, before you decide.

If your main goal is a death benefit for your family, a simpler policy may do the job with fewer moving parts.

The bottom line

Faith is personal. An insurance policy is a contract. Judge an IUL presented in a faith setting the way you’d judge any IUL: by the contract, the guarantees, the costs and what you need it to do.

I’m an independent broker, so I can compare options from several insurance companies. If you’d like a second opinion on a pitch you heard, or want to compare simpler coverage, use the quote form on this page or call me at 888-862-9456.

Sources

• National Association of Insurance Commissioners, “Life Insurance Illustrations”
• Internal Revenue Service, Publication 525, Taxable and Nontaxable Income (“Life Insurance Proceeds” and “Surrender of policy for cash”)
• Internal Revenue Service, “Life insurance & disability insurance proceeds” (FAQ)
• Internal Revenue Service, Internal Revenue Bulletin 2007-25, Rev. Rul. 2007-38 (tax rules for modified endowment contracts)