Direct or Indirect recognition dividend on WL loan balance

[Allen Trent]

Wondered if any of you know if some of The Indirect recognition carriers specifically guarantee in their policy contract language that they will never pay a lower dividend on values collateralized by a loan.

I ask because I saw a carrier that, by current administrative practice is Indirect & they always have been indirect in practice. But actual contract language says they are Direct Recognition & can decide year to year if they pay a lower dividend rate on money encumbered by a loan

 

[Lloyds of Lubbock]

Generally any company that uses a variable loan interest rate pays the same dividend on loaned and unloaned values. Mass, NY Life, just to name a few.
Guardian on newer policies gives the client an option starting in after 10 years.
There are state statutes that dictate how a dividend can be effected by a loan.
I will use NY as an example:
The dividend interest rate spread on loaned values cannot be more than 100 basis less than the interest rate charged. ( Probably not the exact wording). So companies can change their spreads.
So on an older policy that has an 8% loan rate the lowest dividend payable Interest rate only not a rate of return) is 7%.
This is most likely higher than the current scale.
I wont get into the DIR conversation as it has been used and abused too many times.
There is one company I know of (Penn Mutual) that has used (maybe still does) a Variable Interest rate with Direct Recognition.

 

[Allen Trent]

Generally any company that uses a variable loan interest rate pays the same dividend on loaned and unloaned values. Mass, NY Life, just to name a few.
Guardian on newer policies gives the client an option starting in after 10 years.
There are state statutes that dictate how a dividend can be effected by a loan.
I will use NY as an example:
The dividend interest rate spread on loaned values cannot be more than 100 basis less than the interest rate charged. ( Probably not the exact wording). So companies can change their spreads.
So on an older policy that has an 8% loan rate the lowest dividend payable Interest rate only not a rate of return) is 7%.
This is most likely higher than the current scale.
I wont get into the DIR conversation as it has been used and abused too many times.
There is one company I know of (Penn Mutual) that has used (maybe still does) a Variable Interest rate with Direct Recognition.

Thank you.

I get all that.

What I am asking though is if the carriers & agents of a carrier say they are indirect, does their policy language actually state that. Or, does the policy contract say it is Direct Recognition but they may or may not impact dividend on loan values, subject to change annually.

I think I just falsely assumed each carriers contract language in the policy stated this definitely rather than it just being a current marketing practice subject to potential change.

For instance, this link lists 6 carriers that are indirect (not sure if article is accurate), but does the policy language if these 6 carriers definitely state this in writing.

Irony is that Ohio National is on there

Best Life Insurance Companies That Offer Non-Direct Participation Whole Life Policies (2024) | FreeAdvice

Looking for life insurance companies that offer non-direct participation whole life policies? Read now to find insurers with the best whole life dividend history.

www.freeadvice.com

 

[Lloyds of Lubbock]

In a policy with a Direct Rec company, it will say dividends are affected by loans.
I would bet a non d/r policy has no wording regarding dividends on loans.

 

[Allen Trent]

In a policy with a Direct Rec company, it will say dividends are affected by loans.
I would bet a non d/r policy has no wording regarding dividends on loans.

That is what I am thinking. Not looking at a specific carrier, just in general.

 

[Allen Trent]

In a policy with a Direct Rec company, it will say dividends are affected by loans.
I would bet a non d/r policy has no wording regarding dividends on loans.

Here is an example. Current carrier practice is to not pay a lower dividend on values collateralized by a loan. But contract language says they "may". Contract also gives 7.4%(8%) loan rate, but by practice they offer a low cost loan of I believe around 4-4.5%

So, my question really is --what does the contract language say for most of the big mutuals & others that put it on there that they are indirect recognition? is their contract really direct recognition, but by current practice they are indirect? that is totally different if agents dont even realize what contract language says & if it is being used to make a sale that 1 is indirect & a competitor is direct. (again, not debating which is better), just found it interesting that contract language may not be matching marketing/sales materials, etc.