At a time when the entire world is suffering from financial shell shock, there comes a report from a major financial Wall Street firm calling into question the financial integrity of annuities and insurance companies in general.
To reinforce this report, a popular television program comes forth with the question of how anyone can put their money into an annuity contract.
(Talk about shouting FIRE in a theater!) This simply reinforces the popular 'correct' thinking among financial gurus that annuities are suitable only for the financial neophytes of the world.
Like all the so called gurus that have no use for annuity contracts, there is no effort to distinguish between fixed and variable annuities, and never a mention is made of the existence of guaranty funds in every state that function as a backstop for your account if you insurance company fails.
One has to wonder if this failure is due to ignorance, or if there is a bias against the very idea of using insurance contracts as part of the financial planning process The effect on the everyday investor was made apparent recently by a comment regarding AIG heard at a recent public presentation by one of the attendees.
The observation was that since AIG was in financial difficulty, ALL insurance contracts are in doubt.
The AIG situation is a perfect opportunity for all those who distrust insurance companies to say 'I told you so'.
And yet, for those who look into the AIG mess, it will be found that the insurance companies it owns are all paying their obligations and will continue to do so.
Without a doubt, the insurance industry is affected by the same financial storm that affects the rest of the banking and investment industry.
And, it is reasonable to ask any company how their particular financial structure has been impacted.
It is important to recognize that the safety of your 'fixed' annuity or life insurance policy is directly related to the financial integrity of that companies investment.
You can ask them to provide a full display of their holdings if you are seriously interested in doing your own financial evaluation.
Or, you can simply rely on one of the ratings agencies to give you their assessments.
Any representative of the company you might consider dealing with would gladly provide you with the financial statements of the company he represents.
He certainly does not wish to be involved with a company that may jeopardize your nest egg, if for no other reason that he does not wish to betray your trust or need to explain why your contract is being taken over by a stronger company.
So the question of the safety of your fixed annuity or life insurance policy is rather easily determined.
That is not the case for 'variable' annuities, however.
The funds in these contracts are typically invested in assorted stock market accounts, varying in their risk orientation from very conservative to very aggressive.
The safety of your money is directly related to these underlying investments.
You account falls in value when the market falls.
This is no different from the mutual funds you hold.
What makes annuities different is that you have contractual provisions available to insulate you from stock market declines.
Most contracts issued automatically include a provision to guarantee your principal if you die, so that you heirs will not suffer a loss if the market declines.
In recent years however, it has been possible to purchase additional protection with these contracts that guarantee your principal to you as a living person.
And to carry this idea even further, you can actually have your account enjoy an increase in value so that when you go to access it for income, the value is guaranteed to increase even if the stock market did not.
Are these guarantees free? No.
They are the reason for all those extra charges you can load into a variable annuity which have led to so much criticism from the 'experts'.
Now, the question is being raised by the same 'experts' as to whether the insurance company charged enough money.
Perhaps, it was 'too good a deal for the customer? Several companies have have witnessed a substantial decline in the value of their stock as a result of this concern.
Let us assume it was too good a deal for a moment, and that the insurance company standing behind it does not live up to its end of the deal.
What does that do to the underlying investment accounts? They are still there, are they not? You still own them, the same as if you have gone out to purchase them as mutual funds.
Other than losses imposed by the securities markets, the only loss you have is whatever amount you gave to the insurance company for the added guarantees that they promised.
The ultimate source of safety for your investment holdings is diversification.
Never put all your eggs in one basket.
That is one of the benefits of using mutual funds as opposed to investing in the fortunes of individual companies.
Using a variable annuity allows you to allocate investments among a wide range of risk, and to change the allocation at any time.
You can even instruct the company to re-balance your risk distribution on a regular basis.
AND, since this is done in a tax sheltered environment, you need have no tax reporting to be done on the changes.
The advantages offered by these accounts is becoming more widely recognized even by some of the experts.
When you hear an attack on them from any source, you are well advised to simply ask this question: How safe is your recommendation?
To reinforce this report, a popular television program comes forth with the question of how anyone can put their money into an annuity contract.
(Talk about shouting FIRE in a theater!) This simply reinforces the popular 'correct' thinking among financial gurus that annuities are suitable only for the financial neophytes of the world.
Like all the so called gurus that have no use for annuity contracts, there is no effort to distinguish between fixed and variable annuities, and never a mention is made of the existence of guaranty funds in every state that function as a backstop for your account if you insurance company fails.
One has to wonder if this failure is due to ignorance, or if there is a bias against the very idea of using insurance contracts as part of the financial planning process The effect on the everyday investor was made apparent recently by a comment regarding AIG heard at a recent public presentation by one of the attendees.
The observation was that since AIG was in financial difficulty, ALL insurance contracts are in doubt.
The AIG situation is a perfect opportunity for all those who distrust insurance companies to say 'I told you so'.
And yet, for those who look into the AIG mess, it will be found that the insurance companies it owns are all paying their obligations and will continue to do so.
Without a doubt, the insurance industry is affected by the same financial storm that affects the rest of the banking and investment industry.
And, it is reasonable to ask any company how their particular financial structure has been impacted.
It is important to recognize that the safety of your 'fixed' annuity or life insurance policy is directly related to the financial integrity of that companies investment.
You can ask them to provide a full display of their holdings if you are seriously interested in doing your own financial evaluation.
Or, you can simply rely on one of the ratings agencies to give you their assessments.
Any representative of the company you might consider dealing with would gladly provide you with the financial statements of the company he represents.
He certainly does not wish to be involved with a company that may jeopardize your nest egg, if for no other reason that he does not wish to betray your trust or need to explain why your contract is being taken over by a stronger company.
So the question of the safety of your fixed annuity or life insurance policy is rather easily determined.
That is not the case for 'variable' annuities, however.
The funds in these contracts are typically invested in assorted stock market accounts, varying in their risk orientation from very conservative to very aggressive.
The safety of your money is directly related to these underlying investments.
You account falls in value when the market falls.
This is no different from the mutual funds you hold.
What makes annuities different is that you have contractual provisions available to insulate you from stock market declines.
Most contracts issued automatically include a provision to guarantee your principal if you die, so that you heirs will not suffer a loss if the market declines.
In recent years however, it has been possible to purchase additional protection with these contracts that guarantee your principal to you as a living person.
And to carry this idea even further, you can actually have your account enjoy an increase in value so that when you go to access it for income, the value is guaranteed to increase even if the stock market did not.
Are these guarantees free? No.
They are the reason for all those extra charges you can load into a variable annuity which have led to so much criticism from the 'experts'.
Now, the question is being raised by the same 'experts' as to whether the insurance company charged enough money.
Perhaps, it was 'too good a deal for the customer? Several companies have have witnessed a substantial decline in the value of their stock as a result of this concern.
Let us assume it was too good a deal for a moment, and that the insurance company standing behind it does not live up to its end of the deal.
What does that do to the underlying investment accounts? They are still there, are they not? You still own them, the same as if you have gone out to purchase them as mutual funds.
Other than losses imposed by the securities markets, the only loss you have is whatever amount you gave to the insurance company for the added guarantees that they promised.
The ultimate source of safety for your investment holdings is diversification.
Never put all your eggs in one basket.
That is one of the benefits of using mutual funds as opposed to investing in the fortunes of individual companies.
Using a variable annuity allows you to allocate investments among a wide range of risk, and to change the allocation at any time.
You can even instruct the company to re-balance your risk distribution on a regular basis.
AND, since this is done in a tax sheltered environment, you need have no tax reporting to be done on the changes.
The advantages offered by these accounts is becoming more widely recognized even by some of the experts.
When you hear an attack on them from any source, you are well advised to simply ask this question: How safe is your recommendation?
