Are Annuities Usually Safe? October 3, 2009
Posted by janey in : grant money , trackbackA resounding “YES!” is the answer, but some will ask HOW can we know annuities are safe. 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.
Bank deposits and annuities are different because each bank carries FDIC insurance. Many people see that simply as a government guarantee against loss, which it is. But what does the presence of the FDIC say about the institutions that it insures?
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. Certain institutions may be stronger than others, while some others might be unstable. When a bank has FDIC, it is usually regarded as a safe place to keep your money, whether or not it is actually doing well.
Bottom line is the insurance is needed by some of the banks, and not by others. Adequate reserves and superior risk management policies eliminate the need for loss insurance. Lately there has been a growing number of banks that took serious risks and the assurances provided by the FDIC. Because of these problems the FDIC is now faced with shrinking reserves and the strong possibility of insolvency.
You’ll likely agree with the idea that bank deposits are not nearly as safe as annuities.
So, how do insurance companies differ from banks? 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. These guarantees necessitate that your insurance company employs exceedingly conservative measures when addressing strategies for asset management. The insurance companies which are the most stable maintain reserves many time higher than what they require to function.
Also, the assets held in the general account of any insurer in each state are also backed up a guaranty fund. That coverage amount in most state is equal to the $100,000 the FDIC maintains. This is another excellent reason why you will find the words “safe,” and “annuities” in a sentence at the same time.
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. If the company faced insolvency, it would be the general account assets that were released first to policy owners in line with whatever the guarantees were in the contract.
It should be noted there have been a couple cases in which state regulators assumed control of an insurance company and locked up investor money from some time. That definitely represents a unique set of circumstances, and merely highlights the importance of making prudent decisions when selecting products and companies.
It’s relatively simple to locate up to date news regarding the troubles that the insurance industry is facing. Money invested with those companies is still safe but if you’re not convinced, then disregard those organizations and keep looking. 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. Annuities are safe. Not a bad guarantee coming from some of the most solid and consistent companies in today’s financial industry!
Make an informed decision about annuities. Get the Free Annuity Report at www.AnnuityStraightTalk.com - annuities safe
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