High Anxiety Over AIG

Anxiety. That’s what many people are experiencing over the current financial meltdown and concerns about AIG, one of the largest insurance companies in the world. According to USA Today, AIG issues more fixed rate annuities than any other company in the United States, and it is the ninth largest seller of variable annuities.

Should you be concerned about their current financial problems, and what should you be doing, if anything, if you own an AIG product?

The answer to the first question is yes. Being concerned is understandable. But I have good news. It is the AIG holding company which has the problems. According to the state regulators, the AIG life insurance subsidiaries are highly regulated and well capitalized. Take it from Consumer Reports, which released an article this week that read: AIG policyholders . . . need not worry that their claims will be denied. With that being said, if you are holding a general account product and the insurance company fails, these cash values may be subject to the claims of AIG’s creditors.

If you own a variable account product, the underlying values invested in the subaccounts are segregated accounts and not subject to the claims of the creditors. They are, however subject to the changes in the market.

All of these products are protected by your state insurance guarantee association. While each state guarantee may vary, the typical amounts protected are up to $100,000 in cash values and up to $300,000 in death benefits.

So, back to the second question. What should you do now? First and foremost, don’t panic and make a decision based on emotions. Talk to your professional insurance agent or financial advisor to insure you are making an informed decision after reviewing all your options. If you don’t have an agent, go to the LIFE website’s agent locator and click on the agent locator to find an agent near you. The agent/advisor will help you make the decision which is right for you.

What the AIG News Means to You

If you’re an AIG policyholder, as I am, the news of the past two days has probably been a bit unsettling. This is a crisis that is playing out minute by minute, and we all need to stay tuned to figure out what the long-term impact will be on the overall financial markets and our own personal financial situations.

Here’s what we can tell you. If you own an AIG life insurance or annuity product, there are protections in place to safeguard your policies.

They’re called Insurance Guaranty Associations, and they offer a safety net”-nationwide”-to provide protection to insurance policyholders for their guaranteed contract benefits. All states, the District of Columbia and Puerto Rico have insurance guaranty associations. Insurance companies are required by law to be members of the guaranty association in states in which they are licensed to do business.

The following “Questions & Answers” provide some additional details:

How do Insurance Guaranty Associations work?

When there are insufficient assets in an insolvent insurance company to pay policyholder claims, the Insurance Guaranty Association provides funds by assessing member insurers that write the same kind of business as the insolvent insurer. These assessments are used to pay, up to statutory limits, the covered claims of policyholders of the insolvent company or to provide continued coverage for the policyholder.

What are the statutory limits on covered claims?

The amount of coverage provided by the guaranty association is set by state statute. Although state laws differ as to dollar amounts covered by their guaranty associations, nearly all states have enacted a version of the National Association of Insurance Commissioners (NAIC) Model Law, and provide coverage for life, annuity, and health insurance at limits of at least: 

$300,000 in death benefits

$100,000 in net cash surrender or withdrawal values for life insurance

$100,000 in present value fixed annuity benefits, including cash surrender and withdrawal values

$100,000 for health insurance benefits

 

There also is an overall cap for any one individual of $300,000.

How are guaranty association activities coordinated when an insolvent company does business in multiple states?

All state guarantee associations are members of the National Association of Life and Health Guaranty Associations (NOLHGA). In the case of an insolvent life insurer that has policyholders in multiple states, the activities of the state guaranty associations involved are coordinated by NOLHGA. NOLHGA provides resources and technical expertise to the state guaranty associations as well as a national forum for discussion of state guaranty association issues.

The bottom line is this: If you own an AIG policy, chances are that you’ll be just fine. Hopefully, AIG will emerge from the current crisis and shore up its capital position over time. Alternatively, it may sell its life and annuity business, in which case you’d be covered by a different carrier. In all likelihood, your policy(ies) will be honored in full, even if the face value or cash values exceed the limits outlined above. Only under the most dire of scenarios would the cap limits be applicable.

So while the news is understandably unsettling, it’s important to recognize that there are protections in place to safeguard your assets.

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