Are Annuities Really Guaranteed?
Hi there, Stan, The Annuity Man, America's annuity agent, licensed in all 50 states. The question today is a really good one. Are annuities really guaranteed, Stan, The Annuity Man? You talk about contractual guarantees all the time. You talk about guarantees, guarantee this, guarantee that. Are they really guaranteed, and how are they guaranteed? Please tell us that Stan, The Annuity Man. I'm going to do that, thanks for asking.
All right, so let's get down to the basics. Annuities are issued by life insurance companies. Life insurance companies issue annuities of all types. Remember, there are many different types of annuities. Not all annuities are bad out there, you haters. You already own one, with Social Security, you might own two if you have a pension, but there are many different annuity types. So, remember that as we go forward.
Backing up the Claim
Now are they guaranteed? Yeah, they are. Let me give you a couple of examples. Number one, when you buy an annuity from a life insurance company that's issuing that annuity, they're backing up the claim, backing up that guarantee that you're buying. If it's a lifetime income stream, they're backing up the lifetime income stream. If it's a guaranteed interest rate on a MYGA, a Multi-Year Guaranteed Annuity, they're backing up that interest rate.
It's very, very important for you to know which carrier is backing that up. Now I have a couple of different ways I look at that when we're buying different annuity types. For instance, if we're buying a lifetime income stream, we're actually marrying that product, M-A-R-R-Y-I-N-G. For whatever reason, that's hard for Southerners to say, even though I've been married 35 years, bless her heart, what a martyr. The point is when we're buying lifetime income Single Premium Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, Income Riders attached to some Deferred Annuities; we're really looking at the Claims Paying Ability of that carrier to make sure that they can back up that claim because you are marrying them for long as you are breathing.
Typically, that's going to be A, A plus, A double plus, or better. I take it on a case-by-case situation, and I represent pretty much every carrier out there, so we're quoting all carriers for the highest contractual guarantee. Now if you're looking for principal protection and we're looking at a specific period of time, like a Multi-Year Guaranteed Annuity, which is the annuity industry's version of the CD, we're not marrying them, we're dating them. In other words, if you buy a three year or a five year or a six year or a four year, or a seven year, we're going to be there for that duration. Then after that duration, we will either roll it to another MYGA, send you the money back, or send it back to the IRA where it came from.
Claims Paying Ability
So, we're looking at the Claims Paying Ability to guarantee who's backing that up for that specific duration. Follow me? Lifetime income, marrying the company. We're going to marry them. As long as you're breathing, they're going to be there. Interest rates, MYGAs, dating them. There might be a situation with MYGAS where we're buying B double plus carriers or A minus carriers for that duration because we've looked under the hood and deemed it appropriate that they can back up the claim. But at the end of the day, it's the life insurance company that's issuing the policy that you have to base your decision on.
State Guaranty Fund
With that being said, every state has what's called a state guaranty fund that backs up Fixed Annuities, which is what I specialize in. Variable Annuities or securities, that's FINRA, SEC, etc. But Fixed Annuities, MYGAs, Indexed Annuities, Single Premium Immediate Annuities, Deferred Income Annuities, and Qualified Longevity Annuity Contracts all of those are Fixed Annuities, and each state has what's called a state guaranty fund.
Now it's illegal for us to bring that up in a sales pitch or part of the sales process, so think about that for a second. We, as agents, can't proactively talk about that. If you want to go to it and check your state, that website is nolhga.com, and you can see your state coverage, etc. Many people get caught up in that and go down the rabbit hole. It's not FDIC, like with CDs. It's not SIPC, like with securities. It's a state guaranty fund that backs up Fixed Annuities.
That's fine. We really haven't seen those state guaranty funds be tested where we can just point, well, back in the day. We can't do that. I've been doing this forever because annuity companies are smarter than banks. In my opinion, they're just more handcuffed than banks. They can't do dumb things with your money. But the true guarantee of annuities, in my opinion, is what I call the annuity mafia. You go, "Wait a minute, Stan. You're watching too much cable." Maybe, but here's what I'm talking about. Annuities are confidence products. In other words, you have the confidence to transfer the risk to the annuity company to either solve for principal protection, income for life, legacy, or long-term care. That acronym is PILL that I came up with.
So, you're transferring the risk to them. The annuity industry knows that these are confidence products. They know that they can't lose confidence with the consumer because if there was ever a USA Today article that says annuity payments were not paid to blah, blah, blah, and then you see my mom on evening news going, "I just can't believe they didn't send my payment," the game is over for the annuity industry. It's over.
The big boys in the annuity industry, these guys up here, you know their names, they're going to make sure that that's not going to happen. They're going to absorb some companies. There are a lot of consolidations for other issues, but to get market share, etc., because there are 11,000 baby boomers hitting age 65 every day, which is a demographic tidal wave that most people want to get in front of, but what we've seen in the past is companies swooping in, buying up a company that might have a few issues, and things just smoothly keep happening. The guarantees are in place. They keep happening. I truly believe that is the best protection you have.
Let's look at them in order. In my opinion, Claims Paying Ability of the carrier is where you base it. Then you can glance at the state guaranty fund if you want to, but remember, the annuity mafia is watching. They're regulating everything, self-regulating, and ensuring that that golden goose of confidence, as they say in the AFLAC commercial, is there for the consumer. They know that when they put their money in an annuity of any type, the company is going to back up the claim, and the industry is overseeing that as well.
Are annuities guaranteed? Yeah, they are. In my opinion, they're safe, and you should go into them looking at each carrier with confidence. Now with that being said, I want you to choose the carrier and the ratings that make you feel comfortable and make you sleep well at night. If I put a recommendation in front of you, I'm also putting my license on the line as well. Remember that. I'm very confident when I put something in front of you when we talk on the phone. That doesn't mean you have to take it. You might say, "Yes, Stan, you said to buy this A-rated company, but I really feel better with A double plus." Fine. It's your money, and I respect that. I totally understand that. But remember, we're either marrying them or dating them. Then we have the Claims Paying Ability of the carrier, the state guaranty fund, and my friends, that are unknown, that are circling with the annuity mafia. How about that for an answer? That's a factual answer of someone who's been doing it for a very, very long time, and who is that someone? Stan The Annuity Man. I really appreciate you joining us. I'll see you next time.
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