State guarantee funds
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Hey I know we have some folks out there who have studied up on this topic. Let’s use this forum to disseminate some useful information.
With all the insurance companies (and so many other financial firms) under stress out there, there are advisors and clients who are concerned about using annuities because they have concerns about potential failures/bankruptcies.
If an insurance company fails, is there a standard mechanism across various states to help protect the policyholders of the company?
Here are two other questions from another thread:
1.) How bad would it have to get before this ‘safety net’ would be overwhelmed?
2.)
Specifically what would be protected in the VA arena in the event of a
company failure? Would the ‘rescuer’ in a forced takeover likely only
take over the existing assets in subaccount VA’s and the policyholders
would lose the value of existing living guarantees?
If you can cite your resources, or even better post links for people to follow, that would be even better.
It’s funny how these people aren’t afraid to put money into risky stocks and mutual funds, but they’re afraid of Insurance Company Guarantees. Have any of these people canceled their home owner’s insurance because they’re afraid of ins. co. failures? If Allstate fails, will it cause their policyholder’s homes to burn to the ground?
For starters, check this site: http://www.directannuities.com/guaranteed-funds.shtml
[quote=Blitzkrieg Bop]It’s funny how these people aren’t afraid to put money into risky stocks and mutual funds, but they’re afraid of Insurance Company Guarantees. Have any of these people canceled their home owner’s insurance because they’re afraid of ins. co. failures? If Allstate fails, will it cause their policyholder’s homes to burn to the ground?
[/quote]
Who said they were afraid of insurco guarantees?
I think it’s “funny” how you have taken a thread that was started to accumulate useful information and tried to turn it into an editorial about “risky stocks and mutual funds”.
Lemme guess…you’re an insurance salesman and that’s the wording you use when you’re selling your client’s on a VUL policy, right?
Here’s another site (short and sweet). It makes some reference to riders and subaccounts. I’m glad you asked. I have been providing numerous VA’s and other life products. Was knowlegable of state guaranty programs, but not all the specifics. You’ve sparked my interest now. Good to know…looks like thats all I can provide in this market environment.
http://www.insurancenewsnet.com/print.asp?a=top_lh&id=101404[quote=Chitlin]Here’s another site (short and sweet). It makes some reference to riders and subaccounts. I’m glad you asked. I have been providing numerous VA’s and other life products. Was knowlegable of state guaranty programs, but not all the specifics. You’ve sparked my interest now. Good to know…looks like thats all I can provide in this market environment.
http://www.insurancenewsnet.com/print.asp?a=top_lh&id=101404[/quote]Thanks!
[quote=Chitlin]Here’s another site (short and sweet). It makes some reference to riders and subaccounts. I’m glad you asked. I have been providing numerous VA’s and other life products. Was knowlegable of state guaranty programs, but not all the specifics. You’ve sparked my interest now. Good to know…looks like thats all I can provide in this market environment.
http://www.insurancenewsnet.com/print.asp?a=top_lh&id=101404[/quote] Found this paragraph from the above article particularly interesting: These days, however, many variable annuities also come with a variety of optional guarantees, including promises to pay a certain amount of income regardless of how the markets perform. Since these riders are obligations of the insurer, they are covered by the state guaranty associations. I didn't think the living benefits were covered. If this is true, that's enough to make me dance a jig.I always thought that the state guarantees were applicable to Fixed Annuities only, not VA’s. Fixed Annuity money can be comingled with the ins cos general funds, unlike VA funds which are held in a trust.
I’m not expert on this, but that is my understanding
This is regarding CA state guarantees specifically, but this should apply to a lot of states:
Here’s the question: CA says that you have an aggregate amount of $250,000 (of life insurance and annuity coverage; there’s also the $100,000 per insurance company, up to the aggregate limit). And so I’ve been fretting over some of my clients with huge insurance plans, fixed annuities, LTC, etc…
But, what if a client loses a 125,000 fixed annuity in 2009, and in 2010 their 312,500 cash-value whole life goes under. Would the guarantee pay out 100k (80% of 125k) in 2009, and the limit of 250k in 2010?
I guess the summary question is: are there annual resets on insurance coverage? It’s not a lifetime limit on coverage, right?
I was told by a guy in our VA dept that if the firm is gone so are the promises. All that’s left is your cash. I would think if the next wave are large insurers our fearless leaders would smash them together like they’ve been doing to brokerages and banks etc. In NC it used to be and maybe still is but if a life insurer went out of business the other insurers would buy out the contracts per capita bases on the market penetration of the firms. This was to guarantee that life policies would always be honored.
Basically, that is close to correct. The part that is over-looked is that ,since the the Annuity/Life Insurance companies are wholly- owned subsidiaries of the Holding companies, they more than likely would be sold off (i.e. Hartford selling its VA business to Sunlife ) with no impact to the clients or their guarantees. IF the subsidiary were to become insolvent, the other carriers in that state (where the insolvent carrier is domiciled) would band together and buy off the busness on a pro-rata basis based on the% of business they write in that particular state. Some states DO cover living and/or Death Benefits and would pay out based on the benefit base versus the cash value (not NC) but that is the exception, not the norm. You can go to that website (www.nolhga.com) and find out exactly what your state coverage is but the likelyhood of the client ever needing it is slim to none as there are many steps in between…Hope that helps.