Non-Direct Recognition

Non-Direct Recognition refers to a feature where the insurance company does not directly recognise or adjust the policyholder's loan interest rate when determining the credited interest on the policy's cash value.

Essentially, when a policyholder takes a loan against their policy's cash value, the interest credited to the borrowed amount remains unaffected and continues to be credited based on the performance of the chosen index, such as the S&P 500.

This means that the policy's cash value can continue to grow at the same rate, regardless of any outstanding loans, allowing policyholders to potentially benefit from arbitrage if the credited interest rate is higher than the loan interest rate.