Who protects annuities if the insurer fails?

Maurice · 09-15-2008, 09:42 AM

AIG sure has sold a lot of those things.

I've heard that most states limit recovery of annuities to 100k of present value.

FinanceDude · 09-15-2008, 09:45 AM

Quote:

Originally Posted by Maurice

AIG sure has sold a lot of those things.

I've heard that most states limit recovery of annuities to 100k of present value.

That's pretty much it, THEY (the insurer) is on the hook to "guarantee" the funds.....

Maurice · 09-15-2008, 09:53 AM

So annuity buyers can get screwed twice?

Nords · 09-15-2008, 09:56 AM

Quote:

Originally Posted by FinanceDude

That's pretty much it, THEY (the insurer) is on the hook to "guarantee" the funds.....

You'd think that even AIG would lay off some annuity reinsurance.

2B · 09-15-2008, 10:02 AM

Quote:

Originally Posted by Nords

You'd think that even AIG would lay off some annuity reinsurance.

I'm sure Lehmans would sell them some.

This is the little spoken of risk with annuities. Ultimately, you are a creditor of the insurance company. In some cases you "own" high fee mutual funds in a VA but not always. If they do fail, all of your "guarantees" to not lose money and all the other promises go away. Even your smiling annuity salesman goes away.

I'm sure as of 6 months ago no one would have even considered AIG would need to "restructure."

I've run across an occasional person that has lost money in an annuity. One guy had a $10,000 per year payout that was restarted after about 2 years of legal hassles at about $1,000 per year.

harley · 09-15-2008, 10:03 AM

I read an article a few months ago about insurance companies not having the assets to cover the annuities if the market went south. From what I remember there is fine print in the contracts saying that you would only get a certain minimum, and therefore the "guarantees" aren't really guaranteed. I'll see if I can find it again.

FinanceDude · 09-15-2008, 10:06 AM

Quote:

Originally Posted by Nords

You'd think that even AIG would lay off some annuity reinsurance.

Good thing Vanguard doesn't sell AIG annuities or anything.......

FinanceDude · 09-15-2008, 10:08 AM

Quote:

Originally Posted by harley

I read an article a few months ago about insurance companies not having the assets to cover the annuities if the market went south. From what I remember there is fine print in the contracts saying that you would only get a certain minimum, and therefore the "guarantees" aren't really guaranteed. I'll see if I can find it again.

Some insurers have LARGE promises to keep (AIG and John Hancock) while others have much less (ING). 40% of John Hancock's revenue comes from VAs with living benefit guarantees........

al_bundy · 09-15-2008, 10:25 AM

Quote:

Originally Posted by harley

I read an article a few months ago about insurance companies not having the assets to cover the annuities if the market went south. From what I remember there is fine print in the contracts saying that you would only get a certain minimum, and therefore the "guarantees" aren't really guaranteed. I'll see if I can find it again.

years ago i was bought a whole life policy as a gift and it promised all kinds of nice payouts in the marketing literature. i read the small print and it said that nothing is written in stone

donheff · 09-15-2008, 10:49 AM

Quote:

Originally Posted by Maurice

I've heard that most states limit recovery of annuities to 100k of present value.

There are a few states that guarantee higher. DC covers $300K, Washington State $500K. I'm sure it would be a PITA to go through the claim process.

youbet · 09-15-2008, 10:54 AM

Gosh..... in all the zillions of posts I've read here concerning annuities, I've never really considered questioning the so-called "guarantee." AIG's current situation and the comments in this thread regarding insurance limits, etc., are an eye opener.

I'd considered putting some of my RE portfolio in an annuity since DW is not comfortable with financial matters but never got around to it. It's looking even less likely now......

**REWahoo** · 09-15-2008, 10:58 AM

Where are all those annuity salesmen who once flocked to this board whenever the word "annuity" showed up in their Google alert? You'd think at least one or two of them would pay us a visit to reassure folks their "investment" was safe.

FinanceDude · 09-15-2008, 11:01 AM

Quote:

Originally Posted by REWahoo

Where are all those annuity salesmen who once flocked to this board whenever the word "annuity" showed up in their Google alert? You'd think at least one or two of them would pay us a visit to reassure folks their "investment" was safe.

They will be along shortly.......

Rich_in_Tampa · 09-15-2008, 11:16 AM

Careful what you wish for - they'll be here bragging that their products paid a straight 4.6% interest rate the whole time the market was losing 20% annualized, housing was depreciating, and recession roared on.

(Maybe they won't tell you about the 4% when the market was doing 10%.)

Based on pure naivete, I suspect that if AIG or another big annuity writer was on the brink of default, you'd see a huge rescue effort by the insurance titans. They can't afford to let that happen - it would kill their new annuity sales in a heartbeat.

FinanceDude · 09-15-2008, 11:19 AM

Quote:

Originally Posted by Rich_in_Tampa

Careful what you wish for - they'll be here bragging that their products paid a straight 4.6% interest rate the whole time the market was losing 20% annualized, housing was depreciating, and recession roared on.

Quote:

(Maybe they won't tell you about the 4% when the market was doing 10%.)

Why would they?

Quote:

Based on pure naivete, I suspect that if AIG or another big annuity writer was on the brink of default, you'd see a huge rescue effort by the insurance titans. They can't afford to let that happen - it would kill their new annuity sales in a heartbeat.

No,I think the other insurers are cold-blooded and would have no problem seeing AIG fail. Then Prudential, ING, Hancock, Pacific Life, and others can swoop in an pick their bones.......

soupcxan · 09-15-2008, 11:20 AM

Yes, where is Art G when you need him?

Oh wait, I put him on ignore. Never mind.

**REWahoo** · 09-15-2008, 11:22 AM

Quote:

Originally Posted by Rich_in_Tampa

Careful what you wish for ...

I thought maybe you mods would appreciate a little change of pace from hosing down the Soapbox forum.

BTW, have any of you guys contacted Mike Rowe to see if he would be interested in doing a episode on you?

Rich_in_Tampa · 09-15-2008, 11:25 AM

Quote:

Originally Posted by FinanceDude

No,I think the other insurers are cold-blooded and would have no problem seeing AIG fail. Then Prudential, ING, Hancock, Pacific Life, and others can swoop in an pick their bones.......

Who knows.

To me, knowing that thousands of SPIA owners lost 25% of their entire net worth would give me a ton of hesitation about buying such a product from anyone.

If they rescue, people might feel reassured that even in the worst of times, no one lost a nickel in SPIAs.

2B · 09-15-2008, 11:29 AM

Quote:

Originally Posted by FinanceDude

No,I think the other insurers are cold-blooded and would have no problem seeing AIG fail. Then Prudential, ING, Hancock, Pacific Life, and others can swoop in an pick their bones.......

I doubt they're in good enough shape to pick anyone's bones.

I do believe a highly publicized, highly visible failure would destroy the appeal of annuities for a few years.

09-15-2008, 09:42 AM	#1
Maurice Recycles dryer sheets Join Date: Oct 2007 Location: New York Posts: 403	Who protects annuities if the insurer fails? AIG sure has sold a lot of those things. I've heard that most states limit recovery of annuities to 100k of present value. __________________ Money's just something you need in case you don't die tomorrow.

09-15-2008, 09:53 AM	#3
Maurice Recycles dryer sheets Join Date: Oct 2007 Location: New York Posts: 403	So annuity buyers can get screwed twice? __________________ Money's just something you need in case you don't die tomorrow.

09-15-2008, 10:03 AM	#6
harley Full time employment: Posting here. Join Date: May 2008 Location: MD's Eastern Shore Posts: 841	I read an article a few months ago about insurance companies not having the assets to cover the annuities if the market went south. From what I remember there is fine print in the contracts saying that you would only get a certain minimum, and therefore the "guarantees" aren't really guaranteed. I'll see if I can find it again. __________________ "A positive attitude may not solve all your problems, but it will annoy enough people to make it worth the effort." DW and I - FIREd at 50, two years ago, living off assets

09-15-2008, 10:54 AM	#11
youbet Thinks s/he gets paid by the post Join Date: Mar 2005 Posts: 4,499	Gosh..... in all the zillions of posts I've read here concerning annuities, I've never really considered questioning the so-called "guarantee." AIG's current situation and the comments in this thread regarding insurance limits, etc., are an eye opener. I'd considered putting some of my RE portfolio in an annuity since DW is not comfortable with financial matters but never got around to it. It's looking even less likely now...... __________________ Over all was the silence of the wilderness - Sigurd Olsen

09-15-2008, 10:58 AM	#12
REWahoo Administrator Join Date: Jun 2002 Location: Texas Hill Country Posts: 12,345	Where are all those annuity salesmen who once flocked to this board whenever the word "annuity" showed up in their Google alert? You'd think at least one or two of them would pay us a visit to reassure folks their "investment" was safe. __________________ [Closed for renovation]

09-15-2008, 11:16 AM	#14
Rich_in_Tampa Moderator Emeritus Join Date: Feb 2006 Location: Tampa Posts: 6,005	Careful what you wish for - they'll be here bragging that their products paid a straight 4.6% interest rate the whole time the market was losing 20% annualized, housing was depreciating, and recession roared on. (Maybe they won't tell you about the 4% when the market was doing 10%.) Based on pure naivete, I suspect that if AIG or another big annuity writer was on the brink of default, you'd see a huge rescue effort by the insurance titans. They can't afford to let that happen - it would kill their new annuity sales in a heartbeat. __________________ Rich Tampa, FL (10% retired) As if you didn't know..If the above message happens to contain medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any medical purpose whatsoever. Consult your own doctor for all medical advice.

09-15-2008, 11:20 AM	#16
soupcxan Full time employment: Posting here. Join Date: Aug 2004 Posts: 779	Yes, where is Art G when you need him? Oh wait, I put him on ignore. Never mind.