With track records spanning almost 200 years, Whole Life Insurance policies from top-rated carriers are widely considered to be the most conservative kind of cash value life insurance available.

This is especially pertinent during markets like those of today, where black swan events and unprecedented levels of volatility can erase progress made by years of careful planning. Whole Life Insurance has always been a popular product for investors interested in conservative products with stable, tax-advantaged* returns. However, the above combination of an increasingly large demand for stability and a lack of it in traditional investment arenas has made sales of Whole Life policies increase rapidly in recent years.

As a cash value lender whose main priority is putting our clients in the best position possible to make informed and responsible decisions with their funds, we feel that it is our duty at Kensington to educate policyholders on how policy loans can affect the balance and growth of the cash value in their policies.

Insurance Carriers use something called “Direct Recognition” when giving their clients policy loans.

In layman’s terms “Direct Recognition” refers to the practice of applying a different dividend rate to the funds utilized in an outstanding policy loan than they apply to the non-loaned portion of the policy’s cash value. This is critically important in policies with short pay schedules where the early performance of dividend performance and internal cash value are essential in supporting the long-term performance of the policy.

If dividend performance is insufficient due to a policy loan of a substantial size and the policy is not being reviewed on a frequent basis, the policy runs the risk of lapsing and triggering a taxable event for any realized gains within the policy.

Kensington’s unique platform as a third-party lender allows us to alleviate entirely the risk that “Direct Recognition” practices utilized by carriers poses to our clients. Kensington allows our clients to take a loan collateralized by the cash value within their whole life insurance policy, as opposed to using the cash value itself. That means that policyholders can take out a loan with Kensington for up to 95% of the cash value of their policy while still retaining the original dividend rate on 100% of their cash value.

This, along with interest rates hundreds of basis-points lower than policy loans from the carrier’s whose policies we lend upon, puts Kensington in a position to deliver as much value as possible to our clients.