Blog #47 – The Myth of Direct vs Non-Direct Recognition

The Myth of Direct vs Non-Direct RecognitionThe terminology of direct recognition and non-direct recognition refers to the method that the insurance company uses in treating dividends when there is an outstanding policy loan.

When you take a policy loan, you are borrowing against your cash value, using it as collateral for your loan. The amount of cash that you receive as a loan does not actually come from the cash value of your policy, but from the general account of the insurance company so the cash value in your policy continues to earn guaranteed interest and dividends while the loan is outstanding.

A non-direct recognition insurer does not adjust the dividends paid on a policy when there is an outstanding policy loan. A direct recognition insurer adjusts the dividend rate on the cash value collateralizing a policy loan. Although not necessarily so, in most cases the adjustment is negative.

Non-direct recognition companies put down direct recognition companies by saying that direct recognition companies penalize those policies that have outstanding loans by reducing the dividend rate on the portion of the cash value that is collateralizing the loan. Then, direct recognition companies put down non-direct recognition companies by saying that non-direct recognition companies penalize everyone by “reducing” the dividend rate on all policies, regardless if they have outstanding loans or not.

Although you might be disappointed, the truth is that one method is not necessarily superior to the other. Direct recognition versus non-direct recognition is more a game of smoke and mirrors used by the insurance companies themselves to keep your focus away from what is really important. In fact, there are good and bad insurance contracts in both direct and non-direct recognition insurance companies.

What is really important to you as a consumer is what the insurance policy will provide you in cash values at any points in time that are of relevance to you, and this is more specific to the internal design of your policy than the fact that the insurance company is direct or non-direct recognition.

If you would like to learn how you can grow a substantial amount of cash that you have access to at any time without penalties, is unrelated to the stock market, and will generate income that is not included in your tax return, visit our website at  or feel free to email us your questions at or call us toll-free at 1-844-443-8422.

Isis B. Palicio, LUTCF, MBA
Pedro A. Palicio, MBA, Ph.D.
Infinite Banking Concepts® Authorized Practitioners

We are experts in designing high cash value dividend-paying whole life policies.
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