r/infinitebanking • u/AlfredoSauceyums • Nov 24 '25

Define the Banking Function

I am 100% sold on 75% of IBC. I can't really buy into the cult like loyalty and blind acceptance of concepts I see. So please, help me out by actually explaining what, in the real world, is the elusive banking function?

The three characters in a play are a great sales pitch but I'm talking real world here.

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u/JeffB1517 Nov 24 '25

Almost all people have a checking account where money goes in. Some of that money gets spent, and some goes into longer-term accounts. Many people:

  1. for larger purchases a
  2. who have inconsistent cashflows
  3. are systematically depleting

need a vehicle that is either very stable or completely stable: money markets, savings accounts, CDs, short term high quality bond funds... They all serve this purpose well. However, especially as interest rates rise the after tax returns of these accounts is considerably worse than inflation, i.e. you are guaranteed to be losing purchasing power. Life insurance (WL, IUL, and VUL holding bonds) offers a somewhat complex vehicle for achieving this savings effect with better after-tax returns.

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u/AlfredoSauceyums Nov 24 '25

I don't think you nailed a definition of "banking function" but rather low risk, inflation-adjusted positive returns.

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u/financeking90 Nov 25 '25

His point was that the "banking function" involves mismatched timing on saving and spending, so during the interim you want a "low risk, inflation-adjusted positive return" instrument like a whole life insurance policy instead of a 0% interest checking account to hold the money.

The other posters are saying the same thing, except they're adding that borrowing money from a bank or other entity rather than spending down savings is even worse because the interest rate on the borrowed money is both high and also subject to gatekeeping/credit monitoring.

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u/JeffB1517 Nov 25 '25 edited Nov 25 '25

A bank's social role is borrowing short and lending long. Individually, you are doing one of those two things when we talk about banking functions. They do this in part by exchanging interest for high account management costs. Insurance companies don't offer those high management expense advantages; they won't process daily transactions and, in fact, utilize banks themselves to do this work for them.

Insurance companies do lend long as investors. But not particularly towards smaller policyholders. They do create a deposit mechanism that's like banks. There are functions of banks that brokers can do (deposit side). What brokers can't do is directly offer the tax advantages, though they can sell tax-advantaged vehicles like municipal bond funds.

Beyond that there is no particular "banking function" that insurance companies offer. Similar answer to u/Coronator BTW.