Whole Life Dividends: Non Direct Recognition

In the interest in filling in some obvious knowledge gaps, we figured we’d do a quick piece on non-direct recognition. In fact, we’ve decided to do a series on dividend recognition this month. Hopefully, this will satisfy anyone who wandered upon our whole life dividend piece and walked away without a confident understanding of the concept.

Policy Loans: Details, Details, Details

To be clear, if we’re talking about non-direct recognition or its counter option, direct recognition (how creative), we’re talking about policy loans. More specifically, we’re talking about how policy loans affect the payment of dividends on a whole life contract. Now, there is a form of non-direct recognition and direct recognition consideration when it comes to universal life insurance, but that’s a topic for another day.

The Old School Method

Non-direct recognition is the original form of policy loan dividend treatment. Prior to the 1980s, it was the only method used by companies that issued participating whole life insurance. There are purists who claim it’s the only way to go.

Non-direct recognition is also a key feature of Infinite Banking® and Bank on Yourself®. And, it’s generally accepted as the key concept behind the Life Economic Acceleration Process (LEAP®) and the Private Reserve System under Circles of Wealth® (COW – hehe). We’re not totally convinced that non-direct recognition is the be-all and end-all that some of these “systems” would suggest, but we’ll leave that for our discussion later in the week.

Dividends are NOT Affected by Loans

So, the big deal concerning dividend recognition and policy loans is whether or not a policy loan affects the payment of dividends.

Under non-direct recognition, the answer is no: dividends remain the same regardless of outstanding policy loans.

At first glance, this looks great, and to some extreme degree, it can be advantageous. If a policyholder takes a policy loan, the portion of the cash value that acts as collateral for the loan will receive the same dividend as the portion of the policy that is not pledged as collateral.


I’ve noted it before, and I’ll mention it here as well: policy loans do not remove cash from the policy. The loan itself comes from the insurance company, and the cash value is merely pledged as collateral for the loan (i.e., if you don’t pay it back and lapse the policy, the insurance company keeps the collateral to repay the loan).

What Companies?

This is a popular question. What companies practice non direct recognition?

In no significant order:

  • Massmutual
  • New York Life
  • Ohio National
  • Met Life
  • Lafayette Life
  • COUNTRY Financial
  • Guardian Life*

*Guardian began again issuing whole life policies with an option for a non-direct recognition loan during the 20 teens.  The policy owner has the option to us either a direct or non-direct recognition loan and has up to 10 years to make a final decision on which loan option he/she wants the policy to permanently use.

Is it Better?

Again, this will be the topic of a post coming later this week. But, we’ll give you a little peak into where we’ll be going in that post. The important thing to know is that the devil is really always in the details.

That’s just about everything you need to know – for now – about non-direct recognition.


3 thoughts on “Whole Life Dividends: Non Direct Recognition”

  1. Thank you for the insight. As a lender for the acquisition of WL and UL policies we really appreciate reading the Pods. We are not agents so being able to have access to this level of information is helpful.

  2. I proved my insurance agent, what she told me that the loan repay method at death, would be taken out of my $75,000.00 life insurance policy benefit.


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