Lifetime Income Variable Annuity

[ERhoosier]

Generally VAs are separate account products, which means the assets in the policy are segregated from the insurer's assets in the event of an insolvency. Where the rub comes in is that most people buy these things for the guarantee, and that is an obligation subject to the solvency of the insurer. If the insurer goes down, you are at risk to the extent of your guarantee's value.

Don't you mean your risk is the amount your annuity's value EXCEEDS the state's guarantee limit? IOW- If I buy SA for $500k, the insurance co defaults, and my state's guarantee limit is $100k, I'm (potentially) out $400k. Or am I mistaken?

Also- Even where the VA includes separate 'investment' account, the annuity buyer could still loose $$ if the market (assuming stock investments) drops significantly & the insurer defaults, right?

Example- I buy VA linked to market equities for $500k. One yr later the market has dropped 25% & the insurer goes bust. My state guarantee fund limit is (say) $100k. Despite the insurer's "guaranteed minimum accumulation benefit" and the separate "investment" account, wouldn't I still have lost $$$?

http://www.ftadviser.com/2012/01/12...e-annuity-8mQ0z4mwkkG4on5DMLnQvM/article.html

http://www.smartmoney.com/retirement/planning/whats-wrong-with-variable-annuities-9512/

 

[pb4uski]

Regulators would be very reluctant to invade separate account assets to satisfy general account obligations even if they had the right to do so (doesn't mean that they wouldn't if they could and were backed into a corner).

The reality is that the degree of losses in your example are unheard of after regulatory reforms enacted in the 1990s. I'm unaware of any insolvency resulting in loss of principal - ever. Typically though, what the policyholder was expecting for return gets trimmed back.

I worked for one of the reinsurers that stepped in to help with the Mutual Benefit Life insolvency in the 1990s and was tangentially involved in the workout. IIRC the policyholders eventually got their principal back but the return was much lower that MBL had promised when they sold them the policies.

 

[brewer12345]

Don't you mean your risk is the amount your annuity's value EXCEEDS the state's guarantee limit? IOW- If I buy SA for $500k, the insurance co defaults, and my state's guarantee limit is $100k, I'm (potentially) out $400k. Or am I mistaken?

Also- Even where the VA includes separate 'investment' account, the annuity buyer could still loose $$ if the market (assuming stock investments) drops significantly & the insurer defaults, right?

Example- I buy VA linked to market equities for $500k. One yr later the market has dropped 25% & the insurer goes bust. My state guarantee fund limit is (say) $100k. Despite the insurer's "guaranteed minimum accumulation benefit" and the separate "investment" account, wouldn't I still have lost $$$?

Variable Annuity 2.0 - FTAdviser.com

What's Wrong With Variable Annuities - SmartMoney.com

If the crap really hits the fan, the guarantee funds are likely to be worthless. I beleiev you should scope out your risk based on gross exposure ignoring the guarantee funds.

As for the rest, I clearly said that your exposure would be the value of the guarantee. So if your contract value was $400k in separate accounts and a guarantee that was in the money to $100k of value, your $400k would be legally protected from the insurer's insolvency and the $100k value of the guarantee would be at risk.

 

[pb4uski]

I think he was saying his contract value would be $500k (ie; a $500k premium to the VA in the SA) so his $500k should be money good. What would be at risk is the general account's ability to provide the VA contract guarantees to the SA (GMWB, GMAB or whatever), right?

 

[brewer12345]

I think he was saying his contract value would be $500k (ie; a $500k premium to the VA in the SA) so his $500k should be money good. What would be at risk is the general account's ability to provide the VA contract guarantees to the SA (GMWB, GMAB or whatever), right?

Correct.

 

[mickeyd]

If OP feels a great need for a VA, cruise over to the Vanguard site and look at one that has minimal fees/no commissions. I agree with the others who have negatively commented on the merits of VAs in genral.

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