Are annuities protected if the insurance company goes under?

Few people will forget the Great Recession of 2008. In addition to the loss of many personal fortunes, countless companies went under – including some of the largest financial conglomerates that in the past were considered “too big to fail.” Fast forward to today where many people either currently count on – or plan to count on in the future – a retirement income stream that is generated by an annuity. But what happens if there’s a repeat of 2008? In this case, are annuities protected if the insurance company goes under? The answer to that can depend on a number of factors, including which state the insurer is domiciled in, and just how much an individual or a couple has held in an annuity (or annuities) at a particular insurer.

Who’s Insuring the Insurance Companies?

Unlike the issuance of securities, which is regulated by both federal and state laws, insurance companies in the United States are primarily regulated by the individual states. This typically takes place through each states’ Division or Department of Insurance. This regulation includes monitoring the financial health of the insurance carriers that are licensed to conduct business in each respective state. And, if an insurance company becomes financially insolvent, it is the responsibility of a state’s “guarantee fund” to step in and protect the company’s policyholders – which includes those who own annuities. An insurance guarantee association is a state-sanctioned organization that protects policyholders and claimants in the event of an insurer’s impairment or insolvency. The members of these legal entities provide guarantees, and they also work to resolve the insurer’s claims. In the event of the failure of an insurance company, the state’s guaranty fund may work one or more of the following remedies:

• First, they will work to transfer the insurance policies to other, more financially stable insurers,
• If the above does not work out, the guarantee company will work to continue administering the policies by the central guarantee fund

In the latter case, if a state’s guarantee fund does take over an annuity or insurance policy, it will be subject to the coverage limits that are set by each state. As an example, in the state of Florida, the limits for annuity benefits are:

• Cash Surrender: $250,000 for deferred annuity, per contract owner
• Annuity in Benefit: $300,000 per contract owner

For more information about what happens if an insurer goes under, as well as the coverage limits in each state, you can visit the National Organization of Life & Health Insurance Guaranty Associations here.

How to Make Sure Your Annuity is Backed by a Financially Stable Insurer

Before making a long-term (and likely high-dollar) commitment to an annuity, it is essential that you first do some homework and check the financial health of the underlying insurance carrier. One way to do this is to review the ratings from one or more of the insurance company rating agencies. These include A.M. Best, Standard & Poor’s, Moody’s, and Fitch. Although these agencies do not use an identical rating system, they all offer letter grades of A through F, similar to a report card. With that in mind, the insurers with the higher grades will typically be considered financially strong and stable, and possess a good reputation for paying out their policyholders’ claims. It is also recommended that you talk to an annuity specialist so that you can get all of your questions answered regarding a particular annuity (or annuities) that you’re considering, as well as more details about the offering insurance carrier. That’s where Annuity Gator can help. Our business focuses on providing consumers and financial professionals with education and information about “all things annuity.” This includes comparing multiple annuities side-by-side to determine which may work best for you – if any – as well as providing more in-depth details about how annuities work and what you can anticipate if you purchase one. So, if you’d like to chat about annuities and how to narrow down the best product and insurance carrier, feel free to contact us directly at (888) 440-2468, or send us an email through our secure online contact form to schedule a time to chat with an annuity specialist. We look forward to talking with you.