My husband and I hold life insurance policies with American International Group (AIG), which the government just bailed out so it wouldn't fail. How can I tell whether the company would be in a position to pay out on my policies?
AIG's financial turmoil has been a big concern to many Kiplinger readers -- especially because it has offered some of the lowest term insurance rates for the past few years, and the company underwrites the popular Vanguard immediate annuity. The bottom line for these customers: AIG's insurance subsidiaries do have assets available to pay claims, and there are several layers of protection for policyholders.
AIG has several different businesses, and only some of them deal with insurance. Those insurance subsidiaries are subject to different rules from the rest of the company. The state insurance departments set strict capital requirements to make sure insurers can pay claims. As a result, those subsidiaries are not suffering from the same financial troubles as other parts of the company.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
"The insurance subsidiaries are solvent and able to pay their obligations," says Sandy Praeger, president of the National Association of Insurance Commissioners. "In fact, it will likely be the insurance subsidiaries –--or their valuable blocks of business and high-quality assets -- that will be sold in an attempt to return the AIG parent to a more stable financial position.”
For the annuities, the AIG life insurance companies hold substantial assets to back their payment obligations to the Vanguard Lifetime Income Plan fixed annuity contracts, including those indexed to inflation measures, according to Vanguard. And the assets in the Vanguard variable immediate annuities are held in separate accounts that are invested in Vanguard mutual funds and wouldn't be affected by the insurer's financial situation.
If the insurance businesses are sold, then the insurance benefits and annuity payouts should continue to be paid by the new insurer without any disruption.
If the insurance subsidiaries did end up having financial troubles, then the insurance department in the company's home state (New York for many of AIG's insurance subsidiaries) would try to rehabilitate the company. If that didn't work and the company became insolvent, then the state guaranty associations would protect policyholders by continuing the insurance policies and paying claims, up to certain limits.
The maximum limits on protection vary based on the policyholder's state, but every guaranty association must provide coverage for at least $300,000 in life insurance death benefits (per insured life), $100,000 in cash surrender or withdrawal value for life insurance, $100,000 in withdrawal and cash values for annuities, and $100,000 in health insurance policy benefits. Also, "immediate annuity payouts are continued without a break," says Peter Gallanis, president of the National Organization of Life and Health Insurance Guaranty Associations.
Policyholders often receive even more than the guaranty association limits because policyholder claims are given priority over other creditors. "That has happened in a number of cases where either the assets available in the failed company are relatively high compared with the liabilities, or where there's been exceptionally good handling of the estate in the receivership process," says Gallanis. To find out about your state's limits and protections, click on the state associations links at www.nolhga.com.
If a financially strong insurer ends up buying AIG's insurance subsidiaries, your claims could be paid seamlessly. If you're still thinking about switching to another company that isn't in financial trouble, be careful: If you've held a life insurance policy with AIG for several years, buying new coverage now could be a lot more expensive because you're older. And annuity holders could get stuck with a penalty if they switched to another annuity.
-
What's Next for MicroStrategy Stock as Bitcoin Nears $100K?MicroStrategy stock is up more than fivefold in 2024 thanks to a furious rally in bitcoin. Here's what you need to know.
-
BJ's Wholesale Pops on Membership Fee Hike, Stock BuybacksBJ's stock is rallying Thursday after the warehouse club raised its membership fee for the first time in seven years and unveiled a big stock buyback program. Here's what you need to know.
-
Credit Report Error? They All Mattercredit & debt Don't dismiss a minor error. It could be the sign of something more serious.
-
Insurance for a Learning Driverinsurance Adding a teen driver to your plan will raise premiums, but there are things you can do to help reduce them.
-
Getting Out of an RMD Penalty
retirement When your brokerage firm miscalculates your required minimum distributions, you have recourse.
-
529 Plans Aren’t Just for Kids529 Plans You don’t have to be college-age to use the money tax-free, but there are stipulations.
-
When to Transfer Ownership of a Custodial Accountsavings Before your child turns 18, you should check with your broker about the account's age of majority and termination.
-
Borrowers Get More Time to Repay 401(k) Loans
retirement If you leave your job while you have an outstanding 401(k) loan, Uncle Sam now gives you extra time to repay it -- thanks to the new tax law.
-
When It Pays to Buy Travel Insurance
Travel Investing in travel insurance can help recover some costs when your vacation gets ruined by a natural disaster, medical emergency or other catastrophe.
-
It’s Not Too Late to Boost Retirement Savings for 2018
retirement Some retirement accounts will accept contributions for 2018 up until the April tax deadline.
