Are Annuities Really Guaranteed?

Hi there, Stan The Annuity Man, America's annuity agent, licensed in all 50 states. The question of the day is a good one: Are annuities really guaranteed? Stan, you talk about contractual guarantees all the time. You talk about guarantee this, guarantee that. Are they really guaranteed? And how are they guaranteed? Please tell us that, Stan. I’m going to do that. Thanks for asking.

Annuities: Issued by Life Insurance Companies

Let’s get down to basics. Life insurance companies issue annuities. So, life insurance companies issue annuities of all types. Remember, there are many different types of annuities. Not all annuities are bad out there. You haters—yes, you—already own one with Social Security. You might own two if you have a pension. But there are many different annuity types, so remember that as we go forward. Now, are they guaranteed? Yes, they are. Let me give you a couple of examples.

How Annuities are Guaranteed

Number one: When you buy an annuity from a life insurance company, the insurance company backing that annuity guarantees the claims. They’re backing up that guarantee you’re buying. If it’s a lifetime income stream, they’re backing up the lifetime income stream. They're backing up that interest rate if it’s a guaranteed interest rate on, say, a Multi-Year Guarantee Annuity (MYGA).

It’s very important for you to know which carrier is backing that up. Now, I have several ways to look at that when buying different annuity types. For instance, when we’re buying a lifetime income stream, we’re actually marrying that product—M-A-R-R-Y-I-N-G. For whatever reason, that’s hard for Southerners to say, even though I’ve been married for 35 years. Bless our hearts. What a martyr. The point is, when buying lifetime income, Single Premium Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, and Income Riders attached to some Deferred Annuities, we’re looking at the claims-paying ability of that carrier to make sure they can back up that claim because you’re marrying them for as long as you are breathing.

Typically, we’re looking for AA+, A++, or better ratings. I take it on a case-by-case basis and represent nearly every carrier out there. So, we’re quoting all carriers for the highest contractual guarantee.

Marrying vs. Dating the Carrier

Now, if you’re looking for principal protection for a specific period of time, like a Multi-Year Guarantee Annuity (MYGA)—the annuity industry’s version of a CD—we’re not marrying them, we’re dating them. In other words, we will be there for a few years. If you buy a three-year, five-year, six-year, four-year, or seven-year MYGA, we’re with you for that duration. After that, we either roll it to another MYGA, send you the money back, or return it to the IRA from which it came. So, we’re still looking at the claims-paying ability and the guarantees. Who’s backing it up for that specific duration?

Follow me? Lifetime income—marrying the company. Interest rates—dating them.

Looking at the Right Carriers for MYGAs

Based on our research, there might be situations where we buy from B++ carriers or A- carriers for MYGAs to ensure they can back up the claim. But at the end of the day, you have to base your decision on the life insurance company issuing the policy.

State Guarantee Fund and Fixed Annuities

Now, every state has a state guaranty fund that backs up Fixed Annuities, which is what I specialize in—Fixed Annuities. Variable Annuities are securities handled by FINRA, SEC, etc. But Fixed Annuities, MYGAs, Indexed Annuities, Single Premium Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts are all Fixed Annuities. Each state has a state guaranty fund.

It’s illegal for us to bring that up in a sales pitch or as part of the sales process. So, think about that for a second. We, as agents, can’t proactively talk about it. But you can check your state coverage at N-O-L-H-G-A. There, you can find your state coverage and more. Many people get caught up in that and go down the rabbit hole. But it’s not like FDIC with CDs, or SIPC with securities. It’s a state guaranty fund that backs up Fixed Annuities.

We haven’t really seen those state guaranty funds get tested, and I’ve been doing this forever. I believe annuity companies aren’t smarter than banks but are more handcuffed than banks. They can’t do dumb things with your money.

The True Guarantee: The Annuity Mafia

But the true guarantee of annuities, in my opinion, comes from what I call the “annuity mafia.” You’re thinking, “Stan, you’re watching too much cable.” Maybe, but here’s what I mean. Annuities are confidence products. You transfer the risk to the annuity company to solve for principal protection, income for life, legacy, or long-term care. I call it the PILL acronym.

The annuity industry knows these are confidence products. They know they can’t lose consumer confidence. If there were ever an article in USA Today that says, “Annuity payments weren’t paid to…,” and you see my mom on the news saying, “I just can’t believe they didn’t send my payment,” the game’s over for the annuity industry. It’s over.

So, the big players in the annuity industry, you know their names, will make sure that doesn’t happen. They’ll absorb other companies and consolidate for various reasons, but it’s mainly to get market share. With 11,000 baby boomers turning 65 every day, it’s a demographic tidal wave most want to get in front of. We’ve seen companies swooping in and buying up others that might have a few issues, but the guarantees are still in place and continue to happen.

In Summary: Annuity Guarantees

So, let’s summarize: Claims-Paying Ability of the carrier is where you base it. You can glance at the state guarantee fund if you want. But remember the “annuity mafia” is watching. They’re self-regulating, making sure that the golden goose of confidence is there for the consumer. When you put your money in an annuity, you can trust the company will back up the claim, and the industry is overseeing it too.

Are annuities guaranteed? Yes, they are. In my opinion, they’re safe, and you should go into them with confidence. But remember, choose the carrier and ratings that make you feel comfortable. If I put a recommendation in front of you, I’m putting my license on the line. That doesn’t mean you have to take it. You might prefer an A++ rated company. Fine. It’s your money, and I respect that.

Remember, we’re either marrying them or dating them. Claims-paying ability is key. State guarantee funds and the “annuity mafia” are circling. How about that for an answer? That’s a factual answer from someone who’s been doing this for a very long time. Who is that someone? Stan, The Annuity Man

I really appreciate you joining us. I’ll see you next time!