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"What happens if the insurance company goes bust?"

Insurance companies that offer annuity contracts are regulated at the state level. All states have funds set aside to cover the situation of an insurance company failure and so far they claim no one has ever failed to receive a payment. The industry has always managed to make the contract good.

But sure a wide scale industry failure might challenge the system.

When buying an annuity make sure the company is one of the better ones as rated by AM Best.

There have been a few situations where people have worried about the future of their annuities. Collapse of the junk bond market. Money markets breaking the buck after the Lehman's failure. etc. But so far annuities have been OK and much, much, much less volatile than the stock market.
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