How are annuities safe and secure? What makes them stand out from other products?



The guarantee backing up annuities is very unique and diverse. It begins with the insurance company itself. While most of us and our prospects are aware of the rating systems in place to provide the strength of each individual company, many are not aware of one key aspect of safety when speaking of annuities.

Financial Backup: Every annuity issued in this country must be backed dollar for dollar by a secure and liquid asset. The majority of assets backing up each annuity are the safest possible asset, US Treasuries. US Treasuries are so safe they do not even require a credit rating attached to them, they are above that. Other assets backing the annuity may also be bonds of varying rating degrees with the majority being AA or higher.

Regulatory: To do business in any specific state requires a full financial review by the State Department of Insurance. The DOI will evaluate the company, approve the specific products and provide ongoing auditing of the companies finances and business practices. Safety and security is their motto and DOI enforce the rules and regulations to make the annuity industry the safest possible.

The Safety Net: Every annuity policy issued by commercial insurance companies falls under this protection. Each state has a different limit on the protection and it is smart to know your states' actual "present value" limit. This safety net is in place to protect the consumer in the event of insolvency of an insurer. In the event of a company unable to provide the promised benefits of an annuity, the State Guarantee Fund will step in and oversee the guarantee and make certain the annuity value is "safe and secure". There are two exception to this guarantee fund: insurance products issued by a fraternal organization (Knights of Columbus, Lutheran Associations as an example) are omitted from the guarantee. The other exemption is variable annuities issued as a security. (the assets are not at the insurance company but are held in specific securities).

Other financial products such as Bank Deposits allow for the publication of their guarantee program: FDIC. Federal Deposit Insurance Corporation. Notice of the FDIC guarantee is all over the bank including the front door. You know when you enter the bank your money is safe.

Insurance companies are not allowed to play by the same rules. It is illegal for an insurance agent to tell a prospect about the state guarantee fund until AFTER the annuity is purchased. While there is no good reason for this regulation it still is the regulation and must be followed.

In review, annuities are safe, backed dollar for dollar. Annuities are safe because of very strict regulatory rules imposed by state department of insurance. Annuities are safe because of the safety net, the state guarantee fund. A simple call to your state department of insurance will provide you with the limits of guarantee in your state of residence. Many DOI offer brochures explaining how it works and what products are covered and what products are exempted.

I am proud to sell annuities, boring, guaranteed and predictable products. With annuities you can sleep better and have no worry of exposure to loss.