Annuities have long been thought to be a safe, secure - and most of all -, reliable way to build a secure retirement. Government backed, their usefulness has never been in doubt - until now. With the 2008 - 2009 financial turmoil, interest rates have fallen, the stock market is giving low returns and offered annuity rates are somewhat smaller.
Although financial pros and government officials are still giving praise to annuities, they often have a bad rap. However, the problem has less to do with the annuities themselves and more to do with bad advice and applications. Annuities are complex, ever changing and seldom fully understood, but they aren't worthless.
With all the press about insurance companies going belly up, however, you have to be wondering if annuities are still as safe as they were. More specifically, are YOUR annuities safe, and how can you find out?
- Is your money in a general account for the insurance company or a separate account? If the insurance company has it in a general account and they go belly up, you become one of many general creditors. The good thing is that, depending on your state of residence, your account may have a guarantee fund attached to it. The state pays returns your money up to a state specified amount.
If your money is in a separate account, however, your money is protected from other creditors claiming it. If you're worried about the safety of your annuities, checking to find out which type of account the insurance company is using should be the first thing you do.
- Is the insuring company a safe place for your annuity? Make sure the answer is yes! Ask for a ratings report from the company - in writing - or look at their website. If you're not comfortable with their ratings report, move to an insurer with a better rating and separate accounts.
If you need to look for an insurer with strong financial strength, you want to find out the ratings. Preferably, you want to check with A.M. Best, Fitch and/or Moody's, the top, most respected ratings agencies in the business. Here are the financial strength ratings you're looking for:
- From A.M. Best
Those companies that rate between an A- and A have shown excellent to superior operating performance, a strong business profile and ending balance. According to A.M. Best, these companies have "a strong ability to meet their ongoing obligations to policyholders."
- From Fitch
With Fitch, you want companies rated A to AAA. These companies are considered to have a strong to exceptionally strong ability to meet their obligations to policy holders. "Risk factors are moderate, and the impact of any adverse business and economic factors is expected to be small."
- From Moody's
Insurance companies that are rate Aa or Aaa are those that get Moody's highest ratings for excellent to exceptional financial security. These high-grade companies may have some change in financial strength "such changes as can be visualized are most unlikely to impair their fundamentally strong position."
If an insurer meets the recommendations of all three, you can consider it a safe company for your annuities.
Although worrying about your annuity is understandable with the current financial woes and negative press about such companies as AIG, annuities are still a guaranteed method of gaining steady retirement income. The income may be smaller than in other years, but it's still there. The best way to guarantee the safety of your current annuity, however, is to check on the company's current rating and what they're doing with your money.
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