If you’ve ever wondered how safe your annuity was, you’ll be glad to know there’s annuity insurance. Of course, it isn’t called that. Annuities are created by insurance companies. Just like banks with FDIC, insurance companies have protection for their clients in the event a company goes bankrupt. It’s called the state guaranty fund.
Each state has a guarantee fund to protect investors. Like the FDIC that levies payments from healthy banks, the funds come from hundreds of insurance companies that operate in each state. Since insurance companies often operate in several states, annuity insurance , or guaranty fund, have a national organization to co-ordinate the efforts of all the states. This organization is the NOLHGA, National Organization of Life and Health Insurance Guaranty Associations.
This organization has insurance guaranty associations from all states and territories. If an insurance company has financial problems, every insurance company accepts the distressed company’s clients or invests money to help the distressed company until they can pull out of the financial spiral downward.
Knowing there’s annuity insurance helps bring peace of mind to those that worry about the financial state of everything. You can’t be too careful when it comes to investing your hard earned dollars, so knowing there’s annuity insurance brings peace of mind.
Most people that invest in fixed annuities or variable annuities with guarantees are of the disposition and belief that it’s better to be safe than sorry. If you’re not prone to risking funds in you senior years, the annuity insurance and guarantees of fixed, indexed and variable annuities fit into your belief system and portfolio beautifully.
If you take a lifetime payment from an annuity, you in some ways also take annuity insurance. You have the insurance that you’ll never run out of funds no matter how long you live. Some annuities, called inflation indexed annuities, also offer the option of increasing the payments as inflation erodes your annuity payment dollar.
Annuity insurance also comes in the form of guarantees on variable annuities. These guarantees are insurance that you’ll never lose your principal and sometime receive a stated interest rate return, no matter how low the market drops. Some of the guarantee that your heirs will always get exactly what you put into the policy if not more if you should die in a down market.
Between the fixed annuity and the variable annuity stands the indexed annuity. These annuities use a specific index as their guarantee barometer. If that index, let’s use the S&P 500 for example, increases, the owner of the annuity participates in the increase. The annuity insurance in this case occurs if the index drops. Then the owner of the annuity simply gets a stated guaranteed interest rate.
