Direct Recognition

Direct recognition refers to a practice by the insurance company wherein they acknowledge and adjust the policyholder's dividends or interest crediting rates based on the amount of outstanding loans against the policy's cash value.

Essentially, the company "recognises" that a loan has been taken and may choose to either increase or decrease the credited interest or dividends as a result.

Direct recognition can impact the policy's performance, and it's a feature that can be beneficial or detrimental to the policyholder depending on the loan interest rate compared to the credited interest rate.

It is important for policyholders to understand the direct recognition policy of their insurers when considering loans against their IUL policy.