Blog 100 – Direct and Non-Direct Recognition

Pedro Palicio On The Infinite Banking

We have covered direct and non-direct recognition in the past but given the number of questions that we receive on this topic and the substantial amount of disinformation on this issue on YouTube, Google, and the internet in general, we think we should deal with it again.

The terminology of direct and non-direct recognition refers to the method that the insurance company or insurance contract uses in paying dividends when there is an outstanding policy loan.

A non-direct recognition insurer or contract does not adjust the dividends paid on a policy when there is an outstanding policy loan. A direct recognition insurer or contract adjusts – positively or negatively – the dividend rate on the cash value collateralizing a policy loan. 

The truth is that one method is not necessarily superior to the other. The reason people seem to have a dim view of direct recognition loans is because of a misconception. The myth is that whatever cash value is collateralized, it automatically earns a lower rate. Because of this, people think that they are getting the short end of the stick when they have a direct recognition contract. In reality, the loaned cash value has a dividend rate that is a certain number of basis points below the loan rate. If the loan rate is high, this can cause the loaned cash value to earn a higher rate than the non-loaned cash value. If the loan rate is low, then yes, the loaned cash value might earn a lower rate than the non-loaned cash value. Despite the difference, if you analyze a non-direct recognition and a direct recognition contract over a 30-year time frame, the difference in cash values would be much less than 1%, or a few dollars.

What is important to you as a consumer is what the insurance contract will provide you in cash values at 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 contract is direct or non-direct recognition. In fact, dividend recognition is not the most important factor when selecting the best insurance contract for your needs.

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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