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SPIAs > $100K
Old 05-26-2011, 11:20 AM   #1
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SPIAs > $100K

Hello all. I'm new to this forum, so sorry if this question seems basic. I have heard that most states limit their SPIA "guarantee pools" to only $100K. Is this limitation on a "per company" basis only? In other words, could I put $100K in an SPIA with Company A, $100K with Company B, and $100K with Company C, and have them all guaranteed by the state pool?

I am planning to put some of my nest egg in SPIAs when I am nearing 65 years old in order to cover some of my basic living expenses.
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Old 05-26-2011, 11:31 AM   #2
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Info with links here: Immediate Fixed Annuity - SPIA - Bogleheads

FWIW it looks like it is the individual insurer that is backed so if you were so unlucky to have more than one default you should be covered. But that is only my 2c

DD
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Old 05-26-2011, 11:31 AM   #3
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Let Google be your friend:

State Guarantee Funds
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Old 05-26-2011, 12:19 PM   #4
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if you were so unlucky to have more than one default you should be covered.
Yeah, I'd imagine if multiple are defaulting, the state may not be in much of a position to cover anything anyways...
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Old 05-26-2011, 12:59 PM   #5
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The best place to read up on this stuff is here:nolhga.com :: welcome
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Old 05-26-2011, 03:48 PM   #6
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Yeah, I'd imagine if multiple are defaulting, the state may not be in much of a position to cover anything anyways...
It is tempting to treat insurance guarantees as the same as FDIC. They are no where near generous or as safe.

First unlike the FDIC, which provide protection limit per account and per institution, state insurance guarantees have both an individual max per policy typically (100K for annuity) and a lifetime limit per person (typically 300K). So if you have a 300K term life insurance with and an 300K annuity and the company fail you'd only recover the annuity, even if you had the policy with separate companies and both fail you'd be out of luck.

Second and more important unlike FDIC insurance, where the FDIC continually collects premium to keep the FDIC insurance fund solvent and it is backed by the Federal government, state insurance guaranty association have neither. The only time the association collect money is when an insurance registered in the state goes broke, then then association working with the state insurance commissioner levy's an assessment on their members. You are out of luck if you buy an annuity with one company and then move to a state where the company does nothave business, and you are even out of luck if the company stops doing business in your state.

A real worry to me is what would happen to annuity holders in the event of widespread systemic insurance company failure. Imagine that in the next decade an expensive cure for cancer and other diseases is found and life expectancy increases dramatically. What if the investment environment remains challenging, another financial crisis hits and then a Katrina or Japanese tsunami size natural disaster hits. I suspect we will see many insurance companies fail, especially those that offered the most generous benefits and the state guaranty association wouldn't be able to collect money from the remaining financially stress insurance companies. Unlike the FDIC, state guaranty association are NOT backed by the states or any other government with the power to tax.

Now, I've painted a very dire picture. However, it is worth noting that in most (maybe all) states, insurance companies are prohibited by law to use the existence of these state guarantee association in marketing or advertising material. The links given are worth reading.
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Old 05-26-2011, 04:10 PM   #7
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Originally Posted by mich1997 View Post
Hello all. I'm new to this forum, so sorry if this question seems basic. I have heard that most states limit their SPIA "guarantee pools" to only $100K. Is this limitation on a "per company" basis only? In other words, could I put $100K in an SPIA with Company A, $100K with Company B, and $100K with Company C, and have them all guaranteed by the state pool?

I am planning to put some of my nest egg in SPIAs when I am nearing 65 years old in order to cover some of my basic living expenses.
Yes, the state of Texas limits the guarantee to $100k, which is why it's important you put your funds with a company you can trust. There's only a handful of companies with high ratings and good track records.
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Old 05-26-2011, 04:12 PM   #8
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...
Now, I've painted a very dire picture.
...
30 years ago when I questioned the safety of the United Airlines pensions, everyone thought I was crazy...
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Old 05-26-2011, 04:29 PM   #9
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30 years ago when I questioned the safety of the United Airlines pensions, everyone thought I was crazy...
Are they mutually exclusive?
Sorry couldn't resist!
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Old 05-26-2011, 05:01 PM   #10
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Mich, I would not do what you propose. Indeed, I would not do anything but park the money in T bills or deposit accounts for a few months. Take a few months, educate yourself and/or find a good fee-only advisor. Do not make any rash or irrevocable decisions right now. Once you buy a SPIA, it is not a decision you can undo.
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Old 05-26-2011, 08:31 PM   #11
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Mich, I would not do what you propose. Indeed, I would not do anything but park the money in T bills or deposit accounts for a few months. Take a few months, educate yourself and/or find a good fee-only advisor. Do not make any rash or irrevocable decisions right now. Once you buy a SPIA, it is not a decision you can undo.
Very good advice.
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