The 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. As we explained in a previous blog, 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 reduces the dividend rate on the cash value collateralizing a policy loan.

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 insurer will provide you as a tax-free retirement income when you are ready for retirement and that is exactly the way we determine what insurance company to use in each specific case.

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

Direct Recognition and Non-Direct Recognition Insurance Companies