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Direct Vs Non-Direct Recognition Life Insurance Policy Loans

direct vs non-direct recognition

If you are considering using whole life insurance for lifetime coverage, or to use as a retirement plan, there are some things you need to know about.

  •  Direct or Non-Direct Recognition
  •  Participating whole life or non-participating
  •  Withdraw funds via policy loans or withdrawals

Once you understand these three primary considerations, there’s no reason that your whole life policy wouldn’t be able to offer lifetime coverage and provide cash for major purchases or retirement at the same time.

Direct Recognition or Non-Direct Recognition?

Most people we talk with about life insurance are unfamiliar with these two terms and how they can impact the cash value of your life insurance policy when taking a loan from the insurance company. We want to explain it because the type of policy you select can be an extremely important decision.

There are pros and cons to both direct and non-direct recognition companies. Direct recognition companies may offer slightly higher dividends, but they make up for it with a lower rate on direct recognition loans. Non-direct recognition companies often have lower projected dividends, but all of your money will earn the same rate, regardless of whether it is collateralized or not.

Investing in a life insurance policy is a big decision. There are many factors to consider, and one is whether to choose a company that offers gross or net dividends. 

Companies don’t guarantee dividends, and projections don’t always accurately reflect how your account will grow. So even if a non-direct recognition company may make more sense from a collateralized loan perspective, research shows accounts will average about the same regardless. Ultimately, the best thing you can do is research your options and make the decision that is right for what you are planning.

In today’s low-interest-rate environment, many people believe that direct recognition insurance companies are not as good as other companies. The reason for this is that the interest rate on their loans is lower than the dividends they pay out. So the loan interest reduces the dividend. However, this is only a small part of the story.

Direct recognition companies have the ability to separate and allocate collateralized funds into a special dividend pool. This allows for a lower dividend rate to be paid on this portion, as opposed to the non-borrowed portion. As a result, direct recognition companies have the opportunity to pay a stronger overall dividend.

Participating vs Non-Participating Life Insurance

Participating policies earn dividends because they are purchased from a mutual insurance company. Since mutual insurance companies are owned by their policyholders, the profits they generate are shared among the policyholders through annual dividends.

Non-participating whole life insurance policies do not earn dividends because the company providing coverage is generally a publicly held company, meaning the company’s profits are divided among stockholders.

So, if your policy is non-participating, the cash value will earn only a guaranteed interest rate whereas, if the policy is participating, your cash value would earn a guaranteed interest rate and non-guaranteed dividends from your insurance company.

What makes the argument for participating policies even better is that the policyholder can receive their dividends in paid-up additions (PUA). This is like receiving an additional small whole life policy that is paid in full and the policy will earn guaranteed tax-deferred interest as well as dividends.

If you own a non-participating policy, you will not receive the benefits of annual dividends, only a guaranteed interest rate.

Which Companies are Paying Dividends Regularly?

Now that we understand the importance of dividends, it makes perfect sense to find mutual life insurance companies that are paying dividends regularly. The top 10 companies that show a historical positive dividend payment are:

Penn Mutual Foresters Minnesota Life
MassMutual Lafayette New York Life
American United Life Guardian Mutual Trust

American United Life

American United Life is a highly-rated mutual company rated A+ by A.M. Best. AUL is in our top 10 list because they are non-direct recognition and offer multiple choices for accepting dividend payments like paid-up additions.

Ameritas Life

Ameritas made the top 10 list because of its Ameritas Growth Whole Life limited-pay product.  This plan calls for the policy to be paid in full in 10 years and the policyholder can add a paid-up additions rider that allows the policyholder to accumulate significant cash value in the policy very quickly.

Foresters Financials

Foresters made our top 10 because it is a participating whole life policy without a medical exam requirement. Applicants can get up to $400,000 in coverage using a 20-pay or paid-up at 100 without a medical exam requirement.


Guardian is a highly-rated insurer (A.M. Best A++ Superior) and is a direct recognition company. The company demonstrates that it is committed to treating its whole life policies as an asset.

When it comes to creating significant wealth, the Guardian 10-pay insurance product is one of the company’s strongest offerings.

Lafayette Life

Lafayette Life made our top 10 because it is a non-direct recognition company that satisfies the whole life purists in the marketplace. The company is very popular because it is non-direct recognition and demonstrates a track record of positive performance and an A+ rating from A.M. Best.


MassMutual is a giant in the whole life insurance market and is generally always rated in the top 10. They consistently rank very high for historical dividend payments and recently announced a 2022 dividend payout of $1.85 billion or 6%.

Minnesota Life

As part of the Securian Financial Group, Minnesota Life offers a participating whole life product that is well known for a consistent generous payout history that generally lands at the top of the pack among the highest dividend-paying mutual insurers.

Mutual Trust

Founded in 1904, Mutual Trust has paid out dividends to its policyholders for over 100 years. The company has an A rating from A.M. Best and offers multiple participating whole life products for applicants who are looking to accumulate wealth over time.  

New York Life

New York Life is the United State’s largest mutual insurance company. It is simply a behemoth. They are currently ranked in the middle of the Forbes 100 list and continually rank A++ by A.M Best. The company demonstrates its commitment to its policyholders by paying dividends for 167 consecutive years.

Penn Mutual

Penn Mutual is another solid mutual company (A+ by A.M. Best) and gets very high marks in a number of areas, while also ranking as one of our top picks for early high cash value accumulation.

They continue to score points with independent insurance professionals because of the multiple dividend payment options to choose from.

In Conclusion

Whole life insurance can be a complicated product because of its moving parts when you consider direct vs non-direct recognition, participating vs non-participating, and dividends. 

To make everything about your whole life insurance clear and to find the best solutions for your personal circumstances, take advantage of the expertise provided by an experienced and reputable insurance professional by contacting us today.