Do you know what will happen to your annuity if the company goes belly up? Are you protected, and for how much? These are a main concerns of many annuity account holders. So you don’t leave anything up to chance, there are some things you should know about the pros and cons of annuities.
As always, before purchasing any type of investment, you must do your research on the company. Checking out how healthy the company is can save you a lot off pain and hassle. Companies such as A.M. Best and Standard & Poor’s provide ratings of insurance companies for consumers. Watch your back and make sure the company is stable to protect yourself against insolvency issues.
For fixed annuities, if a company becomes insolvent, you will be protected up to an amount determined by your State’s Guaranty system. There are 52 Guaranty associations in 50 states and District of Columbia and Puerto Rico. State Guaranty associations (GAs) provide annuity holders with a safety net against insolvency. You can find the maximum protection amount in your state through the National Organization of Life and Health Insurance Guaranty Associations’ (NOLHGA) website . NOLHGA by the state Guaranty associations to help them coordinate in providing protection to policyholders.
Your State Guaranty System will try two things:
- Either transfer your policy to another stable insurance company, or
- Provide coverage or a cash surrender through the state up to the allowed limit. This amount is $100000 for most states.
For variable annuities, the information on what happens to your money in case a company fails will be listed on your contract. Ask about grace periods you may have to review the contract and get your money back if you are unsatisfied. Read the fine print on the case of insolvency. Also, check out your State GA to see if you may be protected. They don’t generally offer the same protection for variable and fixed annuities.
In both cases, you may be entitled to monies under the liquidation of the company before any involvement of the State. To further protect yourself, however, you may want to spread your investment through several companies. GAs will protect on a per-account basis. You could find out your state’s maximum protection amount and simply not open an annuity account in excess of that. But, it probably won’t be worth the hassle if you do your homework beforehand.