This is a common question that puzzles many people, and unfortunately mis-information usually results in sweeping mis- judgments. Investors, of course want to know that their funds are safe and that their income is secure. Too often, sales people don’t take enough time to understand the underlying strength of the insurance industry and the individual companies that back up annuities. In many cases, annuities and insurance products may be much safer than bank deposits with FDIC guarantee!.
The FDIC Guarantee gives a lot of security to savers, however in recent press, the FDIC has all but said it is bankrupt. FDIC insurance rates- the fees the Banks pay to the FDIC for the insurance on the deposits- have increased 6 to 10 times in recent months, it is quite possible that as an insurance company, the FDIC is so insolvent and is squeezing its ‘customers’ the banks so hard that it may contribute to smaller banks going out of business. Combine the banks rising cost with their souring loan portfolio, and it’s a tough climate.
So while the FDIC emblem on the bank is a good selling point, the strength behind it is the Government printing press, and that engine may be of questionable worth in the years to come.
Insurance companies are different. They are not part of the FDIC system, but instead have actual, real cash dollars in reserves. In addition, each state regulates insurance companies and many states have guarantee funds that back the individual investments the insurance companies manage on behalf of their customers.
Too often, misinformation or bad press clouds the fact that insurance companies are very safe, hold huge cash reserves, and offer equal or stronger guarantees than FDIC insured banks.
We can help you answer the question, Are annuities safe? and learn more on how to select the right annuity if it’s appropriate for your retirement income needs, in The Annuity Report.