Theme: Are Annuities Usually Safe?
October 4, 2009The answer is an absolute yes, annuities are safe, but many people want to know why. Most investors want more than a salesman’s promises - they want concrete facts as well as an objective analysis of annuities safety. Most people don’t trust the industry of finance because of the rampant dishonesty that is thrown around.
Annuities differ from bank deposits because of the FDIC insurance that banks carry. The FDIC is a guarantee from the government against you losing your money in the bank. So, what does the presence of FDIC mean for the each bank that carries it?
This type of insurance makes all banks equal in terms of covering the assets you keep with them. In no way does this translate to all the banks being equal. Some are weaker than others, some are in serious trouble and some are extremely stable. The truth is no matter what the financial health of the bank accepting the deposit, all the FDIC does is create an image of safety.
Bottom line is the insurance is needed by some of the banks, and not by others. By efficiently managing risk and maintaining healthy reserves, a bank won’t truly need to rely on this insurance. Recently, an increasing quantity of financial institutions have attempted risks based on the guarantees inherent in the FDIC’s policies. Because of these actions, the FDIC is seeing the potential for insolvency and reserves that are constantly shrinking.
You’ll likely agree with the idea that bank deposits are not nearly as safe as annuities.
How are insurance companies different? Members of the insurance industry are completely responsible for anything that they guarantee their own customers, and don’t have an FDIC system to back them up. This requires an insurance company to incorporate a very conservative asset management strategy. The insurance companies which are the most stable maintain reserves many time higher than what they require to function.
Additionally, each state holds a guaranty fund that backs up the general account of the insurer. Many states provide $100,000 worth of coverage, much like the FDIC. ‘Safe’ and ‘annuities’ are usually discussed together for just these reasons.
Remember it’s going to be the financial stability of an issuing company that protects the safety of annuities. A variable annuity means the securities are held in an account, and the owner of this type of contract holds an ownership claim to those funds. Another choice is fixed annuities, which are held in the general account of the company. In the case of company insolvency, the general account assets would be first released to policy owners in accordance with the guarantees in the contract.
There are certainly a few cases where state regulators took control of an insurance company and investors’ money was locked up for extended periods of time. While these situations are uncommon, it only serves to emphasize the fact that you need to make wise choices as you deicde on the services you’d like to use.
It doesn’t take long to find current news pointing to trouble in the insurance industry. While the assets that you invest into these institutions are safe, if you maintain any doubt you should keep on looking elsewhere. Look into the major Mutual Insurance sector as the place for unmatched safety and a superior track record. These represent businesses with a very long history and a solid foundation.
When it comes to comparing banks to insurance companies, the analysis is simple. Just consider an insurance company to be like a dependable, solvent, and consistently profitable bank. You can feel secure about annuities being safe. And that’s a Guarantee from the most stable, consistent companies in the financial industry.
Make an informed decision about annuities. Get the Free Annuity Report at www.AnnuityStraightTalk.com - annuities safe