Receiving a good rate is the most important incentive for most investors in selecting deferred annuities. For others, safety of the principal is paramount. Therefore, safety ratings that are earned by a particular deferred annuity company is definitely an important factor in determining which insurer to put your money with. Like with many economic opportunities, the better the safety rating, the lower your rate will be on the contract, and vice-versa. Yet annuity company safety ratings can be a changing barometer of a company's stability since they are not constant. There have been problems of once highly rated insurance firms that eventually fell (e.g. First Capital and Executive Life). Even though no investor lost money on their deferred annuities with either company, they did have inconveniences.
Nonetheless, state guaranty laws efficiently prevented holders of deferred annuities with those companies from losing their money. Although the regulations differ by state, these types of laws typically dictate which deferred annuities are covered for up to $100,000 per separate owner per provider. Because these laws allow for individual protection for each different owner, it's possible for a single owner to protect several deferred annuity contracts with the same company, underneath the state umbrella, simply by titling each and contract differently. For example, a husband and wife could earn state guaranty protection of $600,000 in deferred annuities using six $100,000 uniquely named contracts. They could each have any $100,000 contract in their names, plus one using joint ownership, one of a trust, and two individual retirement arrangements.
Note that these state guarantees are not like FDIC insurance and are subject to funds being available in the guaranty fund. These guaranty funds serve to protect holders of deferred annuities and life policies should one company fail. if several companies were to fail in a state, an occurrence which has never happened, these funds are not designed for that.
Furthermore, the coverage furnished by these laws carry benefits for people seeking higher deferred annuity rates. They can today consider companies with lower safety ratings, as the possibility of losing their money due to insolvency may be effectively negated by the state. Perhaps surprisingly, you may not have heard about insurance guaranty laws from your insurance adviser or broker, because state law will not allow the existence of the particular guaranty fund to be mentioned s a possible inducement to have clients by deferred annuities or other life insurance company offerings. However, in case you ask your agent over it, he or she has a fiduciary duty to describe it to you.
As to scores of insurance companies, five independent businesses - A.M. Best, Fitch, Moody's, Standard & Poor's, and Weiss - rate the monetary strength of deferred annuity companies. Each has its rating scale and its own ranking standards. Weiss for example focuses on the short-term liquidity of the insurance company while A.M. Best focuses more on long term solvency. The rankings can be classified into 'secure' and 'vulnerable' mega-categories, and you can view more detail about the scores and the number of companies that fall into each and every category at this public internet site on annuity safety.
Whether you are seeking greater rates from deferred annuities or greater deferred annuity safety, you may be able to find both.
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