Readers Question: What is a non direct recognition life insurance policy?”

Las Cruces is a city in Doña Ana County, New Mexico, United States. The city of Las Cruces bisects the fertile Mesilla Valley, the flood plain of the Rio Grande which extends from Hatch, New Mexico to the west side of El Paso, Texas. Las Cruces is also the home of New Mexico State University. Las Cruces is home to the annual Whole Enchilada Fiesta. The fiesta’s main attraction is the creation of a very large, flat red enchilada by local restaurant owner Roberto Estrada. The fiesta offers live music, rides, food vendors, and other attractions typical of fairs. The fiesta’s mascot, “TWEFie” (taken from the abbreviation of the fiesta’s name) is a large red chile pepper wearing a sombrero.

Answer to Readers Question: It has to do with a whole life policy and loans taken from that policy. Non direct recognition means that the company still pays dividends and interest based on your cash value as if no loans had been taken out of the policy. In effect, the interest rate you pay on a loan is normally a wash, because the dividends and interest credited to your account are as if there were no loans on your policy, thus any excess dividend payments (after paying the interest on the loan) would actually increase your cash value.

Direct recognition means that your cash value can be eaten away faster because any loans directly reflects on your cash value, and you are only paid dividends based on your cash value minus any loans. Unless you will not take a loan from your whole life policy (highly unlikely!!!–its your money, don’t you want to get some benefit?!?), you would be wise to purchase only from a non direct recognition carrier. A few do exist.

Hope this helps.