I’ve been cautioning since 2008 not to run out and buy annuities or life insurance to try to put money in a safe place.
MetLife now admits its target of earning 12-14% is no longer possible and it will begin selling off or shutting down some of its products. This is from a story available over one Bloomberg.
There are very few assets protecting investors from an insurance company failure. In its final days, AIG was trying to get money out of its policy portfolios and replace it with IOUs from the parent company – not very different from what MF Global is reported to have done.
>”and it will begin selling off or shutting down some of its products. ”
Well, I Almost signed up for MetLife auto insurance at one time. I looked at them when I moved from the ‘Farm’ brand insurance to Soros brand insurance, but I didn’t know back then he owned them. Don’t feel like I did any better with that move.
I am planning on changing to San Antonio based USAA. I hope they are good.
I worry about my parents and their annuity. They hang out with the Edward Jones bunch.
Well with car insurance, you’re less exposed. Car insurance doesn’t rely on future interest rates to remain solvent – it is pretty much “pay as you go”. Unless you had a pending claim or agreed to a payout over time, the most you have at risk is the current premium you paid.
A non-obvious potential victim of the type of collapse that worries me is lottery winners. If you don’t take the lump but instead take it over 20 or 30 years, what happens is the lottery buys an annuity from an insurance company. If they invested that money in ocean front property in Arizona, it might not become apparent for a long time, especially if later annuities would fund paying the old winners. If they fail, that then brings up the issue of whether the State has any legal obligation to make the payments.
States also have similar issues with those prepaid college tuition plans. If you read the small print, if the fund is deemed to be insolvent, there is no state guarantee behind the fund. All that will happen is the remaining funds held in trust will be returned to you.
In all of these cases, there can be ugly tax consequences since the motivation was to get a tax break which vanishes. People who bought life insurance policies then take out the entire cash value as a “loan” they never intend to repay until they die are especially in for a rude awakening.