Could someone please help me understand something about the fine print in annuities and other investment products. They all seem to make all sorts of promises and guarantees in large bold print, and then have some very tiny print at the bottom indicating that their promises and guarantees are subject to the companies ability to pay. I understand what that means in practical terms; however, I've confused at just how much of a risk one is taking with, for example, a major company such as Prudential, who appears to be financially stable and secure.More specifically all things remaining stable, I am not so much concerned that Prudential is going to all of a sudden lack the ability to honor payment on an annuity. My concern, however, is that all things may not remain stable in the economy as a whole. If one has $250,000 sitting in a cash account (not invested but just earning interest) and $250,000 invested in a Prudential annuity, which pot of money is the most vulnerable in the event of a total economic meltdown? Or, would both pots be equally vulnerable in such a condition?
They all seem to make all sorts of promises and guarantees in large bold print, and then have some very tiny print at the bottom indicating that their promises and guarantees are subject to the companies ability to pay.Life insurers rarely go bankrupt. Life insurance and annuities are one of, if not the, most stable types of insurance. You must be looking at a presentation based on an often arbitrary projected rate of return. Those often don't hold up very long and the actual rate of return ends up at, or at least much nearer, the guaranteed rate. As far as principal and guaranteed rate of return, you shouldn't have a problem. One of the few times I've known a life insurer to have some financial problems involved commingling of funds by intermediaries who were using float to divert premium payments. As I recall, another life insurer bought the policies, honored the contracts at guaranteed return rates and the perpetrators went to prison while their luxury assets were sold to return much of what they "borrowed".
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