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Are Your Annuities Protected?


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In the December issue of Fortune, Walter Updegrade soothes the concerns of some consumers worried about their annuity investments. Despite the struggling financial markets, so far no major life insurance company has gone under. Even AIG’s insurance subsidiaries have remained largely unscathed!

State insurance departments will liquidate an insurer in the worst-case scenario, and your level of protection will depend on the type of annuity you have and how much you’ve invested:

  • Variable annuities invest your money in so-called subaccounts that are completely separate from the insurer’s own accounts, and therefore protected from their financial problems and their creditors. Any guaranteed annuities that have been provided are covered by your state’s guaranty association. While insurers are legally obligated to maintain an existing customer’s guaranteed minimum income benefit, make sure to examine your annuity’s prospectus to see if they have the right to increase fees for them. Losses associated with the stock or bond markets in equity-indexed annuities are not covered.
  • Fixed annuities are covered by state guaranty associations if a failed insurer cannot afford to cover its annuity policyholders. Most states cover at least $100,000 worth of cash and withdrawals, but amounts vary. Nolhga.com lists coverage limits for each state.

Walter claims that you will recover at least a portion of your money in either case. Not to mention that the taxes and penalties charged for early withdrawal may make it worth it to hunker down, as opposed to taking your money out to avoid the risk.

Of course, it’s always best to speak with a financial advisor or planner yourself before making any important decisions about your investments.

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