What Is A Non Direct Recognition Life Insurance?
A non direct recognition life insurance is a type of whole life insurance policy that would not lessen the dividends even if you take a loan from it. Be aware that dividends can not be assured by any means and by any person since dividends could be larger, smaller or non-existent from one year to another. The strength of the life insurance provider and dividends from the past are not good signs of dividends in the future.
With this type of life insurance, the cash value of the policy could be reduced faster since all the loans effect the cash value and the dividends that will be paid from the cash value excluding the loans. In case you intend not to obtain a loan from the insurance whole life, it would be better to buy just a non recognition life insurance. All cash accruals only occur following the full payment of all the loans.
The life insurance provider still reimburses the dividends and the interest according to the cash value as if no loans had been deducted from the life insurance policy. The rate of interest paid on the loan is usually a wash since the interest and dividends on the policy are like a swap and there were no loans, so whichever additional dividend payments (following the payment of interest for the loan) will in fact add to the cash value.
When you take out a loan from your life insurance, the interest rate gained from the loaned life insurance policy is recognized upon the calculation of dividends on the life insurance policy.
The main reason for purchasing life insurance is death benefit, however accumulating cash value is a good by-product. Make a note that having a loan from your life insurance could create taxes and endanger the security that your life insurance provides.