I don’t really like variable annuities. They are very complicated and have a lot of hidden fees that most people don’t understand. Nonetheless, many of my new clients arrive at our first meeting with statements from variable annuities they have been sold.
Many of the annuities have a guaranteed value, or a guaranteed withdrawal amount. Most of my boomer clients with variable annuities are way over invested in stock funds within the annuity for people their ages so the cash out value would be substantially less than the initial investment or the guaranteed value with the market declines of 2008.
So were stuck with them for now. Now I’m wondering will the insurance companies be able to make good on all those guarantees my clients have been paying for. The Wall Street Journal just ran a great story on variable annuities.
Here is a quick quote from the article about the financial strength of some of the major annuity companies:
“Moody’s has “negative outlooks” on units of top-10 U.S. annuity sellers Lincoln, Hartford Financial Services Group Inc., Prudential Financial Inc., and Canadian giant Manulife Financial Corp., while ratings of units of American International Group Inc. are under review for possible downgrade. Last week, Moody’s downgraded units of Europe-based ING Groep NV to A1 from Aa3, giving them stable outlooks.”
The states that regulate insurance companies do provide some protection for annuity owners. You can find out about your state’s insurance at www.nolhga.com
Here are some links to ratings agencies that rate insurance company financial strength