I've been reading some material on the different types of Annuities and am curious about some of the fine print. All of the companies include the standard language about their pay-out promises being contingent upon their abilities to pay.That statement as always puzzled me. The way it reads it sounds as though they are saying, "give us your money and we may or may not give it back to you, and that decision is left to our sole discretion." Does it only apply to the promises they made with respect to potential growth and the length of time the company can extend the annuity, or does it mean that my principal could be in jeopardy and interest earned?
The statement relates to all of the promises made by the annuity contract you sign with the insurance company. It is especially important to those who have annuitized their contracts meaning they have assigned all of the assets to the insurance company in return for a promise to make regular or monthly payments to you under the contract usually for life.What happens if financial disaster means the company does not have the assets to pay or goes bankrupt? The language says you go to bankruptcy court and press your claim, but you will probably collect only part of what is due you if anything.As a practical matter, every state requires the industry selling contracts in their state to maintain funds to bail out their failing sister company contract owners. The industry claims that so far everyone has collected on their contracts. Hence, all have been made whole in spite of many bumps in the economy from time to time.The same language applies to the funds you invest in a variable annuity and the guarantees of future value. They are backed by the company's assets and not by any govt agency. That is why you want to check the AM Best rating of the company selling your contract. You depend on their financial stabilty for the life of the contract, sometimes for decades.
Thanks. I guess if the economy gets bad enough for the Prudential's and New York Life's of the country to fail, we are all going to be in heap big trouble regardless of where we have our funds invested.
It is exceedingly rare for an annuity not to pay their guarantee. Often, the annuity business of a life insurance company is the most well-funded. Add to this fact that the State will back-stop at least $100k (I think that is the minimum in most if not all states), and you have a fairly safe option.For example, AIG actually sold their annuity business to another company so that they could remain in business. It was still profitable and well-funded at the time of the sale.
if the economy gets bad enough for the Prudential's and New York Life's of the country to failSure, but keep in mind the value of a well known and respected brand name. For every such brandname you can bet there are dozens of copycats who hope to do as well. Hence, it is not at all surprising to find a better deal offered by a company you have never heard of. They are working to gain market share and may be losing money in the meanwhile.That is why you want to check AM Best to make sure you are dealing with a financially stable organization likely to survive and be able to keep its promises.
Thanks. I appreciate all of the information. Very helpful.
It is exceedingly rare for an annuity not to pay their guarantee. Often, the annuity business of a life insurance company is the most well-funded. Add to this fact that the State will back-stop at least $100k (I think that is the minimum in most if not all states), and you have a fairly safe option.I wonder if that $100,000 guarantee is a cumulative total or a per-account guarantee? It would be nice to invest in three separate $100,000 annuities (rather than one $300,000 annuity) and, in effect, have the full $300,000 guaranteed.
Since this is insurance on the company, it basically works just like FDIC insurances does - so it is per institution. You would be covered for $100k at each company.Again, each state has their own and some are more (I think New York is $300k) but you can visit my state to get an idea at http://www.inlifega.org/.
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