A:

If an insurance company is having financial problems, you don't necessarily have to pull your money out of the annuity. Even in a financial meltdown, there's no need to sweat when it comes to the safety of your annuity and the stability of the insurance company behind it. First off, if the annuity is a variable annuity, the present value of the separate account (investment portion) would be covered up to $500,000 under Securities Investor Protection Corporation (SIPC) regulations. This is similar to the FDIC coverage at bank accounts, but investment accounts are covered by SIPC.

However, if your annuity is not a variable annuity held in a segregated account, your annuity would likely be covered by a state guaranty fund. States typically cover annuity values up to $300,000 for life insurance death benefits, $100,000 in annuity withdrawal and cash value, and $100,000 in surrender values for life insurance. So check your state guaranty fund's coverage limits to see how much of your annuity will be covered, and if it covers the whole amount you wouldn't necessarily need to cash out to avoid losses. If your annuity value exceeds the covered limits, you may need to weigh the taxes and penalties of taking your money out and make a decision from there, or consult a professional.

Next, keep in mind that insurance companies have recurring annual fees (profits from mortality, administrative and operating expenses) that are collected from your annuity each year, which makes annuity business typically one of the insurance company's more profitable lines of business. Because of the recurring revenue stream, it also makes the annuity sector very attractive to other insurance companies as a "buy-out" piece if your insurance company happens to go under.

For further reading on annuities, check out Annuities: How To Find The Right One For You and Taking The Bite Out Of Annuity Losses.

This question was answered by Steven Merkel.

RELATED FAQS
  1. How do I get out of my annuity and transfer to a new one?

    Find out how to transfer your investment from one annuity to another, including what factors to consider before making the ... Read Answer >>
  2. My variable annuity account took a beating. Should I seek other alternatives?

    This depends on several factors, you should ask yourself, the insurance company, or your adviser the following questions ... Read Answer >>
  3. For what types of financial instruments would I want to calculate the present value ...

    Learn about the types of financial instruments the present value of an annuity calculation is most useful for, including ... Read Answer >>
Related Articles
  1. Financial Advisor

    Annuities: The Good, Bad and the Ugly

    Annuities suffer from a few perception problems. This primer that covers the good, the bad and the ugly of annuities.
  2. Retirement

    Annuities: How To Find The Right One For You

    Fixed, variable and indexed annuities offer different features. Find out which one fits your needs.
  3. Investing

    DIY Annuities: What You Need to Know

    Annuities are attractive because they can give you a stream of income, but they can be tricky to buy.
  4. Retirement

    Who Benefits From Retirement Annuities

    Annuities guarantee some degree of fixed income in retirement. But is the security worth the fees and less favorable tax treatment? How to decide.
  5. Retirement

    How a Fixed Annuity Works After Retirement

    These popular investments can provide a steady stream of income during your retirement years. Here are the details.
  6. Retirement

    Guaranteed Retirement Income In Any Market

    By laddering annuities, you can be sure you'll have income no matter what the market does.
  7. Retirement

    LTC Annuities: 2 Safety Nets In 1

    Pairing insurance and an annuity sounds good, but do you really need this much coverage?
  8. Financial Advisor

    Are Annuities Right for You?

    Annuities are safe and often appealing, but IRAs and 401(k)s offer advantages that annuities typically can’t match, with little additional risk.
  9. Retirement

    Getting the Whole Story on Variable Annuities

    Variable annuities are another way to save money tax-deferred - but don't jump in blindly!
RELATED TERMS
  1. Valuation Period

    The time between the end of the business day of the first business ...
  2. Annuity In Advance

    An amount of money that is regularly paid at the beginning of ...
  3. Secondary Market Annuity

    A secondary market annuity (SMA) is a transaction in which the ...
  4. Mortality And Expense Risk Charge

    A variable annuity fee included in certain annuity or insurance ...
  5. Ordinary Annuity

    A series of equal payments made at the end of each period over ...
  6. Wraparound Annuity

    A type of annuity that allows the investor (the holder of the ...
Hot Definitions
  1. Derivative

    A security with a price that is dependent upon or derived from one or more underlying assets.
  2. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  3. Sharpe Ratio

    The Sharpe Ratio is a measure for calculating risk-adjusted return, and this ratio has become the industry standard for such ...
  4. Death Taxes

    Taxes imposed by the federal and/or state government on someone's estate upon their death. These taxes are levied on the ...
  5. Retained Earnings

    Retained earnings is the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested ...
  6. Demand Elasticity

    In economics, the demand elasticity refers to how sensitive the demand for a good is to changes in other economic variables. ...
Trading Center