Can a whole life policy you already own work for infinite banking, the practice of borrowing from your policy's cash value instead of from a bank? Technically yes, as I told a viewer in a video on using any whole life policy for infinite banking. Most whole life policies allow loans. The trouble is that not all of them have good loan terms, and many don't hold much cash value early on.
That second problem comes from the design. A policy built for banking has a small base death benefit, a large amount of paid-up additions, and high cash value in the early years. Paid-up additions are small bits of extra paid-up insurance bought with extra premium. It's built that way so your money is reachable when you need it. A policy built the traditional way might take a decade to hold a meaningful amount you can borrow.
Then look at the loan rate, because it decides how hard the math is. Ten years before I recorded that answer, loan rates at some big mutual companies were around 8%. When I recorded it, they were 5% or 6%. Rates differ by company and by policy, and they change, so check your own contract right now. At 8%, you have to find a use for the money that earns more than 8% just to break even on the interest. At 5% or 6%, that's a lot easier to justify.
The gap between what your money earns and what the loan costs is called arbitrage. Your policy keeps growing while a loan is out, so the question is whether that growth, including dividends, beats the interest you pay. Dividends aren't guaranteed, and a loan reduces your cash value and death benefit until it's repaid.
You can test an old policy in an afternoon. Ask the company for an in-force illustration, which means a current projection of your policy's values. Ask for the loan rate and whether it's fixed or variable, which the two ways policy loans charge interest covers. Ask how much you can borrow today. Then compare the loan rate with what you'd pay on a home equity line of credit or a personal loan.
If the numbers are weak, you still have choices short of cancelling. You can keep the policy for the death benefit, and you can build a better-designed policy next to it. Before you replace a cash value policy explains why to ask for a max-funded in-force illustration first, because replacing a policy can cost you years of built-up value.
Call the company this week and write down the loan rate and the amount you can borrow today, then set them next to the rate on your cheapest outside line of credit.