Direct vs Non Direct Recognition Life Insurance

Direct Recognition vs Non-Direct Recognition, which one is better?

Which one do you want? When an insurance company issues a contract they agree to assume certain risks on behalf of the policyholder in exchange for a premium.

One of the risks they have to assume is the risk associated with providing loans to policyholders who want to leverage their death benefit to take a policy loan.

1. They can force ALL policyholders to assume the risk associated when someone takes a policy loan against their policy. (this is called non-direct recognition)


2. They can give everyone who doesn’t have an outstanding policy loan against their policy a greater share of dividends declared. (This is called direct recognition)

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