Will my money be safe?
One of the greatest concerns people have about investing their money is the risk involved. With annuities, however, your principal is 100% safe and you are guaranteed to earn at least a minimum interest rate. So how is this guaranteed safety possible?
To begin with, insurance companies are closely supervised and regulated by each state's insurance department. This includes periodic company examinations, etc., to be sure each company is financially able to meet its obligations.
Secondly, although annuities are not FDIC insured, they are backed by a Legal Reserve System that each life insurance company is required by law to have. This law mandates that a large percentage of each premium dollar received must go into the policy owner's reserve fund. The total reserves must (at all times) equal the total withdrawal value (principal plus minimum interest less early withdrawal fees, if any) of every annuity policy the company has issued. State laws also require a life insurance company to maintain certain minimum levels of capital and surplus to further increase policyholder protection.
And the protection of your money does not stop with the Legal Reserve System. Virtually all states have created what is called a "Guaranty Fund." Any insurance companies that do business in a particular state contribute to this fund. The Guaranty Fund is then used to reimburse resident policyholders if a state-licensed insurance company should fail. (You may wish to contact your local state insurance department for more information about coverage limits, etc., that apply to your particular state.)
As you can see, annuities really are designed to be one of the safest options available. As a consumer, you face much less risk with annuities as compared to stocks or bond purchases because you are unconditionally guaranteed 100% of your principal plus minimum interest (usually around 3 percent). So when it comes to safety, annuities ought to be considered as a safe and beneficial addition to one's investments, because diversification is still the best way to build a portfolio that can stay afloat in any weather.
