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What Happens to an Annuity if the Insurance Company Fails

Stan Haithcock
August 12, 2021
What Happens to an Annuity if the Insurance Company Fails

What happens when your annuity provider goes bust? Can you lose money in your annuity? Does the state ensure fixed annuities? I understand the fears that you might have about the safety of your annuity. We're going to cover it all, and we're going to start by talking about state guarantee funds. The NOLHGA is what I call them. In the fixed annuity world, fixed annuities are backed by what's called state guarantee funds. Each state has one, and they have a specific limit that they'll cover with the annuity if the company fails.

Understand this, FDIC is the best coverage on the planet. That's what you get with your bank CDs, et cetera. Do not allow any agent or advisor to tell you that state guarantee funds are the same or better. They're not. It's there, it's protection, but I will tell you this, it's never been tested. So when you buy an annuity, focus on the claims-paying ability of that carrier. So what is and is not covered when your annuity company fails? Good question. And you need to know this before going into an annuity. Not that we're planning to fail, but you always have to understand the contract.

The accumulation value of a deferred annuity is covered under those circumstances. What's not covered is those luscious Jimmy Carter yield, pie in the sky, income riders. Those are not covered when your company fails. It's the accumulation value that is covered, not the income rider. All right?

So we talked about deferred annuities like indexed and variable annuities and the fact that the accumulation value was covered, but the income riders were not covered. So let's talk about QLACs, qualified longevity annuity contracts, deferred income annuities, and single premium immediate annuities. The income stream that you're going to get is covered with no attachments. That amount, that income AA Guarantee that's coming in every month and hitting your bank account, is covered.

I sometimes compare the annuity industry to mafias because, in my opinion, the annuity industry self regulates. The big companies look after the small companies. And if somebody goes awry, they come in and swoop down and absorb them. At least that's what I've seen in the past. That's what I call the annuity mafia. And I think that's good protection for you. Remember this; annuities are confidence products. And if confidence is lost in the claims-paying ability of annuities and the lifetime income guarantees and things like that, the annuity industry is over. So what does the annuity mafia mean to you? It means that some oversight is hidden, and no one talks about how the annuity industry oversees itself.

People always ask me, “has there been an example recently of a carrier going under being absorbed by that state guarantee fund, and what happened to them?" Here's what happened. In 2008, I'm not going to name the carrier; the state guarantee fund absorbed them. I think they were a B plus company, and very quickly, very quickly, another company came in and absorbed that company and backed up all the guarantees. No one missed a payment. No one missed anything. Here's the bottom line about annuities; they’re confidence products.

Remember, when it comes to a new city and the possibility of the insurance company failing. When you talk to me, I represent pretty much every carrier out there. We're going to check the claims-paying ability of that carrier and look at all four writing services, AM Best, Moody, Standard & Poor's, and Fitch, and use the Comdex rankings as well. In other words, we're going to do our due diligence to find you away very, very strong carrier with that.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.

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