Should I pull my money out of an annuity if the insurance company is having financial problems?

By Steven Merkel AAA
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. Do unpaid medical bills appear on my credit report?

    Find out if an unpaid medical bill can be reported to a credit bureau, if it affects your credit score and when it is turned ...
  2. Are annuities qualified or nonqualified retirement instruments?

    Learn the basics of annuity investments and the tax-deferral they offer, and discover the differences between qualified and ...
  3. Where else can I save for retirement after I max out my Roth IRA?

    Max out your Roth IRA first, then look to other retirement accounts like 401(k) plans, IRAs and annuities to sock away as ...
  4. How does taxation on life insurance for a qualified retirement plan work?

    Purchase life insurance in your qualified retirement plan using pre-tax dollars. Be aware of other ways that life insurance ...
RELATED TERMS
  1. Interest-Crediting Methods

    A credit method that determines how interest changes to a fixed ...
  2. Case Management

    Planning, processing and monitoring the healthcare services given ...
  3. Convertible Insurance

    A type of life insurance that allows the policyholder to change ...
  4. Guaranteed Issue Rights

    A right afforded to individuals insured under Medicare that requires ...
  5. Lifetime Reserve Days

    The number of hospital days that an insurance policy will cover ...
  6. Hurricane Deductible

    An amount a homeowner must pay before insurance will cover the ...
Related Articles
  1. 7 Factors That Affect Your Life Insurance ...
    Investing

    7 Factors That Affect Your Life Insurance ...

  2. For Life Insurers, Making Money Is A ...
    Insurance

    For Life Insurers, Making Money Is A ...

  3. Top 10 Money Mistakes New Parents Make
    Personal Finance

    Top 10 Money Mistakes New Parents Make

  4. Insurance Myths Involve Houses, Cars ...
    Insurance

    Insurance Myths Involve Houses, Cars ...

  5. How the Affordable Care Act Changed ...
    Insurance

    How the Affordable Care Act Changed ...

Trading Center