We are often asked Are Annuities Safe concerning the safety of funds deposited with annuity insurance carriers in the form of premiums.
Annuities are one of the safest places to put your retirement savings. Insurance carriers have been a major component of America’s financial infrastructure for over two hundred years. Collectively they hold trillions of dollars in assets and offer financial protection for almost every contingency, from: fire in the home, to auto accidents to pre-mature deaths, to living much longer than expected.
Insurance carriers operate under a very strict set of regulatory guidelines which governs: the quality and type of investments they can hold; the reserves they must maintain to cover the risks they are insuring; and the rates they are charging consumers. Each state has variations of these rules, but it is important to note, that the carriers have to abide by all the state rules, not just those of their home state. If a carrier is found to be in violation of any guideline, the state insurance regulators have the authority to take over the operation of the carrier and bring it into compliance.
Insurance companies are regulated by each state in which they conduct business. So a large company that operates in all fifty states, is subject to the regulatory requirements of every state. Every state has their own department of insurance and every state belongs to the NAIC (National Association of Insurance Commissioners). NAIC provides a mechanism for all the state regulators to exchange data, regulatory philosophies and agree on common legislation and regulations.
Insurance carriers are also rated for their financial strength by a number of companies that specialize in publishing financial report cards. A.M. Best’s is the most often cited and rates insurance carriers from A++. It should be noted that A.M. Best has a diversification rule that requires carriers to be in multiple lines of insurance to be awarded their higher ratings. Therefore, some carriers that only issue annuities, might have a lower A.M. Best rating that a competing company with a similar financial structure, but that also has a line of life insurance products.
Standard and Poor’s also issues ratings and opinions on insurance carriers as well as many other industries as do a number of other ratings services. Links to the most commonly used financial rating services are provided below.
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