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Old 07-29-2012, 12:12 PM   #81
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When you buy a life annuity you’re gambling that you’ll live longer than most, and the insurance company is gambling that you may drop dead tomorrow.

Also, I’m uncomfortable with idea that somebody stands to profit greatly form my early death, I even wonder if they might help me get there sooner. . .
The insurance company isn't "gambling" at all. Of course the insurance company takes a cut (they're a business after all), but SPIA purchasers who die before their life expectancy end up funding the retirement of SPIA purchasers who live past their life expectancy. The "somebody" who profits from your early death is mostly another annuitant who lives longer than normal life expectancy.
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Old 07-29-2012, 12:19 PM   #82
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Originally Posted by Free_at_49 View Post
(snip) ...and the insurance company is gambling that you may drop dead tomorrow.
Uh, wrong.

I/DW have a joint life SPIA, with a defined life term (28 years).

If either/both live after that calculated mortality date, payments continue at 100% until we're both gone.

If either die before the end of the period, the survivor recieves 100% of the original monthly payment.

If we both pass before the term period ends, our named beneficiary continues to receive payments (at 100%) until the end of that 28-year period.

If I (or DW) "drop dead" tomorrow, it does not impact our contracted payments. "Someone" will benefit from our preimum paid...

Sorry - you don't seem informed about the possible terms of SPIA contracts...
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Old 07-29-2012, 12:21 PM   #83
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Originally Posted by easysurfer View Post

How risky is an anuuity going belly up if one gets one with a state's covered limits.

In otherwords, is the risk a real risk or an event that can happen but is quite unlikely?
Again, dunno. I could have never imagined 10+ years ago when DW started her state gov't pension that she would be told they're reducing the benefit today. Gov't pensions seemed like the ultimate level of security, but apparently not so, even for those long retired.

Things change. There are no true guarantees or means to calculate risk levels in other than high-medium-low terminology.
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Old 07-29-2012, 12:43 PM   #84
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There are annuties and there are annuties. I assume they were speaking of an EIA (Equity Income Annuity) - not the subject of this thread (which is for SPIA's - not EIA's).

Unfortunately, many "wolf's" are in "sheeps" clothing in this area.

Don't confuse an SPIA (the subject of this thread) with an EIA. They are two different "animals"... (Snip)
Rescueme , you are indeed correct , hers was not not a SPIA. Sorry , just the subject of annuities generally gets my blood boiling.
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Old 07-29-2012, 12:51 PM   #85
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Rescueme , you are indeed correct , hers was not not a SPIA. Sorry , just the subject of annuities generally gets my blood boiling.
No problem.

When researching the subject of "annuities" a few years before my retirement, I also was confused due to the various products attributed to the "term".

My BIL had been investing with EIA's for many years (via his "buddy", and insurance "consultant").

However, upon my investigation, I found that his "path" was not the same place I wished to be - for my money.

You can buy friends via an EIA, or you can go it alone with just an SPIA (if it suits your needs).

I don't have any "friends" - can't you tell?
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Old 07-29-2012, 01:11 PM   #86
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What's the actual likelihood that an insurance company that provides annuities would go belly up?

Would be nice if there was some site that kept track of such information so we can make a more concrete judgement instead of know that "a company going belly up is just a possiblility."

Then of course, such information would make things too easy .
Well, the financial statements of all insurers are public documents and they are really, really detailed. Have at 'em. Alternatively, just about every insurer who wants to sell policies has a public rating from one or more agencies.
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Old 07-29-2012, 01:14 PM   #87
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Again, dunno. I could have never imagined 10+ years ago when DW started her state gov't pension that she would be told they're reducing the benefit today. Gov't pensions seemed like the ultimate level of security, but apparently not so, even for those long retired.

Things change. There are no true guarantees or means to calculate risk levels in other than high-medium-low terminology.
Makes sense about the no true guarantees and risk levels.

Sorry to hear about the pension situation with your DW.

So, it looks like the true risk of an annuity company going belly-up is really "unknown" and one just has to make the best guesstimate possible.

Just for kicks...on something more measurable...

What Are the Chances of Being Hit by Lightning? | eHow.com
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Old 07-29-2012, 01:18 PM   #88
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Makes sense about the no true guarantees and risk levels.
Like the day I married DW?

We took a "risk" on each other. Now, some 42 years later, we (well at least me) found it to be a good "investment" (heck, I'm more than happy with the "return").

You can't guarantee your lilfe, IMHO.
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Old 07-29-2012, 01:20 PM   #89
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Oh, BTW - there was no "cost" involved for our SPIA. Any expenses were to be "recovered" by their investment of our preimum over the long term.
As I'm sure you'd admit, there was definitely a cost. Their investment of your premiums was something you could have done yourself and then kept the proceeds. On average you would have come out well ahead by doing this (otherwise the insurance company couldn't afford those big buildings and high commissions--paid for by policyholders)
That doesn't mean this was a bad deal for you, it might very well have been worth paying these costs for the tangible (longevity insurance) and intangible (no need to try to choose an investment for these funds) benefits, but they certainly didn't come at "no cost" (regardless of what the salesman said). For us consumers, insurance isn't so much about "averages" but "what if's"
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Old 07-29-2012, 03:06 PM   #90
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As I'm sure you'd admit, there was definitely a cost.
I'm sure there was (why would they be in business?)

However, unlike an EIA product, I do not see it.

BTW, my SPIA policy/contract does not specifiy any "cost" to me, as a policy holder. As long as it is under the covers, I have no problem with a profit that they achieve with the preimum paid. The contract is very simple. It states "for a consideration of X-dollars submitted within X-days, we will pay you an amount of X, for the remainder of your/joint life, not to be less than X years". It was up to me to create an IRR spreadsheet to determine the minimum total payout vs. the amount of the preimum, to make the decision if I/we were to accept the % return and accept/reject their proposal. It was in fact, simple as that. No "salesman", commission, annual fee, nor early termination fee to worry about.

Yes, there was a licensed insurance professional who I spoke through on the telephone (e.g. Fidelity) but they were there to present the facts and basically a "take it or leave it" position, without any hard core selling at all. BTW, I went through several companies (annuity.com, Vanguard, Fidelity) for quotes, and made my/our decision not only based upon current monthly income, but also features of the policy that met our lifestyle/requirements.

For me, it's all about the long term commitment of the monthly income I can count on for the remainder of my (and DW, and our son if we both pass before the guaranteed term) life.

If they can make a profit on it? So be it. We probably hold their company as a fraction of our portfolio anyway, so we are still ahead ...
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Old 07-29-2012, 08:26 PM   #91
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What's the actual likelihood that an insurance company that provides annuities would go belly up? ....
Incredibly low for a number of reasons.

First, insurers are highly regulated by state insurance regulators that constrain the types of investments that they can make and require a certain amount of capital. The insurers have to do quarterly reporting to insurance regulators and more extensive annual reporting which is audited, typically by one of the big four accounting firms and are subject to a more detailed examination by insurance regulators every 4 years or so. If an insurer's capital declines below a certain level, then the regulator will require a company to submit a plan as to how they intend to remedy the situation and if accepted, the plan is monitored. If the insurer's capital continues to decline, there are a defined succession of interventions that would occur, the most extreme of which would be the regulator taking over the insurer. In theory, even if an insurer is taken over the insurer may still have sufficient assets to fund its liabilities. In many cases the regulator will find a more healthy insurer to assume the less healthy insurer's policies, or the regulator will manage the in-force policies as they run off the books.

Second, in the unlikely event that the intervention isn't quick enough, then state guaranty funds would help provide for any deficit of liabilities over assets. These state guaranty funds are funded via assessments on healthy insurers. A paper published by the National Organization of Life and Health Insurance Guaranty Associations addressed the systemic risk as follows:
"..... could the guaranty system meet its obligations if the crisis resulted in the simultaneous failure of several nationally significant insurers?

The answer from historical experience is “yes.” During the last major wave of life insurer insolvencies in the early 1990s, the guaranty system protected all consumers to whom it had responsibilities when confronted with the simultaneous resolutions of three nationally significant insurer failures (Executive Life Insurance Company, Mutual Benefit Life Insurance Company, and Confederation Life Insurance Company), plus a number of failures involving middle-tier and smaller companies. At no time – not even in the most expensive years – did the cost of protecting consumers even remotely approach the assessment capacity of the guaranty system."
Third, in addition to the above, most major insurers are given financial strength ratings by the major rating agencies, and the capital requirements to get good ratings are even higher than what regulators demand (typically 3-4 times the level where regulatory interventions would begin).

To the best of my knowledge, there have not been any significant insurance company failures since the risk-based capital regulatory system was put in place 15-20 years ago.

(AIG's problems were at the unregulated parent company, its regulated insurance subsidiaries were not part of the problem. In fact, they were part of the solution because the proceeds from the sale of many of AIG's insurance operations provided funding for AIG's repayments to the US treasury).
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Old 07-29-2012, 08:36 PM   #92
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Uh, wrong.

I/DW have a joint life SPIA, with a defined life term (28 years).

If either/both live after that calculated mortality date, payments continue at 100% until we're both gone.

If either die before the end of the period, the survivor recieves 100% of the original monthly payment.

If we both pass before the term period ends, our named beneficiary continues to receive payments (at 100%) until the end of that 28-year period.

If I (or DW) "drop dead" tomorrow, it does not impact our contracted payments. "Someone" will benefit from our preimum paid...

Sorry - you don't seem informed about the possible terms of SPIA contracts...
So it sounds like you have a SPIA that is a certain period and has no life contingencies at all - in exchange for $x single premium the insurer will pay you or your heirs $y per month for 28 years - end of story.

Which is different from many SPIA discussions on this forum where the payments are for life or for the longer of a defined period or life.
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Old 07-29-2012, 08:44 PM   #93
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.....Personally I don’t trust American insurance companies or their longevity. Remember, the largest insurance company, AIG went bankrupt a few years ago and was saved by taxpayers. Other bankruptcies included Bank of America, Citibank, General Motors, Ford, Chrysler, and a long list of banks. We’ve already spent trillions bailing out Wall St., do you still want to gamble?
Your "facts" are all screwed up. AIG did not go bankrupt, nor did BofA, Citibank or Ford. In fact, Ford didn't even come close. GM and Chrysler did. 2 out of 6 ain't bad tho.
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Old 07-29-2012, 11:53 PM   #94
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What's the actual likelihood that an insurance company that provides annuities would go belly up?

Would be nice if there was some site that kept track of such information so we can make a more concrete judgement instead of know that "a company going belly up is just a possiblility."

Then of course, such information would make things too easy .
Often you can go to the insurance companies web site to see their ratings from a number of ratings folks. And for sure you can ask the salestypes as well. If you want to go that far you can check the status of the company at the state insurance commission where the company is headquartered, (not the holding company but the actual insurance company, the big guys have a lot of subsidiaries so check carefully). But then did you do the same due dillegence when you bought a life insurance policy, where the bet is the exact opposite of an SPIA, i.e you bet you die soon, the insurance company bets you die later.
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Old 07-30-2012, 07:47 AM   #95
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So it sounds like you have a SPIA that is a certain period and has no life contingencies at all - in exchange for $x single premium the insurer will pay you or your heirs $y per month for 28 years - end of story.

Which is different from many SPIA discussions on this forum where the payments are for life or for the longer of a defined period or life.
No, it is a joint life policy with a rider that ensures that we receive a minimum payment (due to an expected age) in order to eliminate the old annuity adage of "if you die early, the insurance company gets the money".

If either/both live longer than the 28 year guaranteed term, payments continue (at 100%) until we are both gone, be it at age 87 (the computed joint lifespan), or 107. However if we both die before the age of 87 (or 336 monthly payments), the remaining "unused" payments go to a named beneficiary - not the insurance company.

There are several options/forms the policy can take, and it's more of a "menu choice", with each option slightly reducing your monthly income. I won't go into it here, but here's some info, if you care to read about the basic options (no, I'm not advertising nor promoting the product; we just happen to have one, and see too much mis-information thrown around):

What is a Single Premium Immediat Annuity??
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Old 07-30-2012, 07:51 AM   #96
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Got it - thanks for the clarification - I didn't pick up that the payments continued for your joint life.
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Old 07-30-2012, 08:55 AM   #97
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Often you can go to the insurance companies web site to see their ratings from a number of ratings folks. And for sure you can ask the salestypes as well. If you want to go that far you can check the status of the company at the state insurance commission where the company is headquartered, (not the holding company but the actual insurance company, the big guys have a lot of subsidiaries so check carefully). But then did you do the same due dillegence when you bought a life insurance policy, where the bet is the exact opposite of an SPIA, i.e you bet you die soon, the insurance company bets you die later.

That's a good comparison about the life insurance policy. It seems most folks when signing up for a life insurance policy usually don't have in their minds, "What if the company goes belly up?" Yet, if we consider an annuity, that's one of the first questions.
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Old 07-30-2012, 08:58 AM   #98
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Incredibly low for a number of reasons.

First, insurers are highly regulated by state insurance regulators that constrain the types of investments that they can make and require a certain amount of capital. The insurers have to do quarterly reporting to insurance regulators and more extensive annual reporting which is audited, typically by one of the big four accounting firms and are subject to a more detailed examination by insurance regulators every 4 years or so. If an insurer's capital declines below a certain level, then the regulator will require a company to submit a plan as to how they intend to remedy the situation and if accepted, the plan is monitored. If the insurer's capital continues to decline, there are a defined succession of interventions that would occur, the most extreme of which would be the regulator taking over the insurer. In theory, even if an insurer is taken over the insurer may still have sufficient assets to fund its liabilities. In many cases the regulator will find a more healthy insurer to assume the less healthy insurer's policies, or the regulator will manage the in-force policies as they run off the books.

Second, in the unlikely event that the intervention isn't quick enough, then state guaranty funds would help provide for any deficit of liabilities over assets. These state guaranty funds are funded via assessments on healthy insurers. A paper published by the National Organization of Life and Health Insurance Guaranty Associations addressed the systemic risk as follows:
"..... could the guaranty system meet its obligations if the crisis resulted in the simultaneous failure of several nationally significant insurers?

The answer from historical experience is “yes.” During the last major wave of life insurer insolvencies in the early 1990s, the guaranty system protected all consumers to whom it had responsibilities when confronted with the simultaneous resolutions of three nationally significant insurer failures (Executive Life Insurance Company, Mutual Benefit Life Insurance Company, and Confederation Life Insurance Company), plus a number of failures involving middle-tier and smaller companies. At no time – not even in the most expensive years – did the cost of protecting consumers even remotely approach the assessment capacity of the guaranty system."
Third, in addition to the above, most major insurers are given financial strength ratings by the major rating agencies, and the capital requirements to get good ratings are even higher than what regulators demand (typically 3-4 times the level where regulatory interventions would begin).

To the best of my knowledge, there have not been any significant insurance company failures since the risk-based capital regulatory system was put in place 15-20 years ago.

(AIG's problems were at the unregulated parent company, its regulated insurance subsidiaries were not part of the problem. In fact, they were part of the solution because the proceeds from the sale of many of AIG's insurance operations provided funding for AIG's repayments to the US treasury).
Thanks. Good to know there are some safety measures in place.
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Old 07-30-2012, 09:08 AM   #99
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Rescueme , you are indeed correct , hers was not not a SPIA. Sorry , just the subject of annuities generally gets my blood boiling.
Just a reminder:

Private and public pensions are annuities
Social Security is an annuity

Now you don't have to get so mad!
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Old 07-30-2012, 09:33 AM   #100
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That's a good comparison about the life insurance policy. It seems most folks when signing up for a life insurance policy usually don't have in their minds, "What if the company goes belly up?" Yet, if we consider an annuity, that's one of the first questions.
Understandable to me. IN GENERAL (yes, there are many variations in life insurance and annuities) - Life insurance you pay a small amount of money over a long period of time that will yield a huge return if the unlikely happens. Life insurance is buying an estate in the event you die before you generate an estate yourself.

With an annuity you pay a huge amount all at once that you can never get back hoping the payout will match or exceed what you could do investing on your own, knowing that if pass early actuarially other annuitants you don't know will get the benefit of your funds. An annuity is future income, usually for an indefinite period.

Again, IN GENERAL...
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