Annuities

iVillage Member
Registered: 08-19-2007
Annuities
25
Thu, 09-18-2008 - 1:50am

I don't want to be alarmist, but it might be wise to check on what might happen with people's annuities. One other thought, can you imagine if the country had privatized Social Security and enormous numbers of Americans had substantial chunks of their Social Security tied up in this. Thank you liberals for winning the Social Security battle.


 



Are Annuities At Risk?

By Dan Caplinger

September 15, 2008




In the ongoing search for higher income, many investors have turned to annuities as a way to get better rates than bank CDs and other fixed-income products offer. Yet with the financial troubles that annuity giant AIG (NYSE: AIG) currently faces, investors are concerned about what could happen to their annuities if the insurance companies backing them don't survive the credit crunch.


Falling rates, more annuities
The big drop in short-term interest rates over the past year has hurt retirees who rely on the income from their investments to cover living expenses. Yet while rates on bank CDs have fallen from last year's levels, fixed annuities often offer substantially higher rates. In particular, with banks now a major seller of fixed annuities, comparing their rates against CD rates was easy -- and made fixed annuities look extremely attractive.


Unfortunately, it's not as easy for some investors to understand exactly what protections were included in each product. The FDIC, which protects bank accounts up to $100,000, requires banks that offer outside investment products like fixed annuities to be explicit about the fact that only bank deposits are entitled to FDIC insurance protection.


Health matters
For the typical saver, FDIC protection makes buying bank CDs a lot simpler. Even if you bank with institutions like Washington Mutual (NYSE: WM), Wachovia (NYSE: WB), or National City (NYSE: NCC), all of which have their shareholders sweating over whether their entire investment will go up in smoke, you can buy a CD and not have to worry about losing a penny. The worst things you'll have to deal with are the hassle of getting your money back early and the search for a new account elsewhere.


Annuity owners, however, don't have the same assurances. As the insurance companies themselves will remind you, annuities are backed by the ability of the company to pay claims.


That lack of protection forces you to look at how healthy the insurance company is. Because annuity owners often agree to keep their money with an insurance company for years, you need to be absolutely confident that your company will still be around before buying an annuity. Yet although AIG's drop has been the most significant, competitors like Allianz (NYSE: AZ), AXA (NYSE: AXA), and ING (NYSE: ING) are also trading near 52-week lows.


A backstop for investors
Concerns about the health of insurance companies may be enough to persuade you not to buy a new annuity. But what if you already own one?


Fortunately, there's some good news for annuity investors who are concerned about their money. Guaranty associations provide some protection for investors when insurance companies become insolvent.


Because insurance is regulated at the state level, different states have different levels of protection. According to the National Organization of Life and Health Insurance Guaranty Associations, every state provides at least $100,000 of coverage for annuity owners if an insurance company becomes insolvent. Some states provide more, with New York and Washington covering up to $500,000 in annuities.


However, this additional guaranty protection shouldn't lull you into a complete sense of security. Although guaranty funds have handled fairly large isolated insurance company failures in the past, such as the failure of Reliance Insurance in 2001, there is concern that a string of problems could overwhelm the system.


Be safe
During turbulent times, it's important to know the full extent of every risk you take with your investments. If you own an annuity, keep in mind that even if shares of your insurance company fall to zero, you're still likely to get at least some money back, either from the liquidation of the company or from your state guaranty association.


Nevertheless, before buying an annuity, you still should check out the financial condition of the company that's selling it to you. If you're not convinced it will weather the current credit crisis, you'll probably sleep better at night if you buy that insured bank CD instead. http://www.fool.com/investing/dividends-income/2008/09/15/are-annuities-at-risk.aspx




Edited 9/18/2008 1:51 am ET by glitter_girl_5000

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iVillage Member
Registered: 09-15-2008
Thu, 09-18-2008 - 6:00pm

"One other thought, can you imagine if the country had privatized Social Security and

iVillage Member
Registered: 06-09-2008
Thu, 09-18-2008 - 6:06pm
Not trying to be condescending, but do you anything about annuities other than the article below ?
iVillage Member
Registered: 08-19-2007
Thu, 09-18-2008 - 9:13pm
iVillage Member
Registered: 08-19-2007
Thu, 09-18-2008 - 9:17pm

Not trying to be condescending, but do you anything about annuities other than the article below ?


Not trying to be condescending, but do you understand what critics mean when they correctly describe Republican

iVillage Member
Registered: 08-19-2007
Thu, 09-18-2008 - 9:24pm

Yes, it means those near retirement would be economically secure and this downturn would’ve been much less severe than it has been.

iVillage Member
Registered: 09-15-2008
Thu, 09-18-2008 - 10:25pm

"Oh right, I forgot that in the Republican world view

iVillage Member
Registered: 08-19-2007
Thu, 09-18-2008 - 10:26pm

Bump it up.


iVillage Member
Registered: 08-19-2007
Thu, 09-18-2008 - 10:39pm

Try backing up your statements with some kind of facts or even a reasoned argument. Until that happens, I apologize

iVillage Member
Registered: 09-15-2008
Fri, 09-19-2008 - 1:04am

The facts are readily available.

iVillage Member
Registered: 08-19-2007
Fri, 09-19-2008 - 1:29am

The stock market is just as safe as government bonds too (even in today’s climate).

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