Evaluate your insurance company

The insurance industry has not been exempt from federal bailouts and financial distress, and in today’s financial landscape, consumers may want to learn about risks to their policies, annuities, or insurers themselves.

In this financial climate, buying a new annuity from a top-rated company is especially wise.

You can judge an insurance company by its Comdex ranking, an average percentile ranking of credit ratings provided for life and health insurance companies by firms such as Moody’s Investors Service, A.M. Best Company and Standard & Poor’s Corp. If an insurer has a Comdex rating of 85, for example, its strength and solvency have been ranked superior to 85 percent of the insurance companies in the index.

If an insurance company has been downgraded three or four times, you want to keep an eye on it.

There are state guaranty funds in case insurance companies fail. While annuities aren’t FDIC insured, you may have up to $100,000 of coverage by your state’s guaranty association in case of failure. We’re talking cash value. Death benefits are often protected by states to a limit of $300,000.

State guaranty funds usually don’t cover losses incurred by investment subaccounts.

If an insurer is in real trouble, state insurance departments will usually monitor its health and try to stave off failure by helping them find more capital or arranging a sale to a healthier insurance company. When new companies take over annuities, the annuity owners make payments to or collect payouts from the new insurer. The terms of the annuity usually aren’t affected as a result.

You should not surrender an annuity if you can help it. If you do, you might end up with less than you would if the insurer had failed. Surrender charges can be sizable, while state guaranty funds commonly offer protection up to $100,000 or $300,000.

If your annuity provider appears to be on shaky ground and the surrender charge period is over or just about over for the annuity, you could consider a 1035 exchange – a tax-free exchange from your current annuity contract into a contract with new terms, which could be provided to you by a higher-rated insurance firm.

Need to know more? Talk to your financial consultant or insurance agent. It’s a good time to make sure your annuity and policy are with a highly-rated insurer.

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