Explaining a financial services regulatory structure.
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Protection when it comes to money. It's a very common objective protection is one of the most important reasons. People purchase annuities, the guarantee of principle and income that is guaranteed to continue for life are among the valuable benefits. Annuities offer people who are considering the purchase of an annuity. Sometimes ask this question, what happens if the insurance company fails while it's a very rare event it can. And it has happened. According to the National Organization of Life and Health Insurance Guarantee Associations, there have been seven insurer bankruptcies since 2001. By contrast, according to the FDIC 564 banks failed between 2001 and May 1st 2023. Thankfully to one extent or another, both insurers and banks have insolvency protections applicable to annuity and bank account holders. This video focuses on aspects of the protection in place for annuities. It's important to understand that an annuity is a contract between an insurance company and the owner of the annuity. The insurance contract governs the benefits that the annuity provides. But what happens if an insurance company fails and can't make good on its contractual promises, annuity owners are protected by state based guarantee Associations. Guarantee associations are nonprofit entities that are created under the laws of each state. They exist for one purpose to protect the purchasers, savings and annuities on life insurance policies within certain limits and conditions. In the event of an insurance company failure guarantee associations protect the owners of annuities up to a statutory limit for cash values. In most states, the aggregate limit is $300,000 per person. But in some states, the limit can be as high as $500,000. But the limits vary and you can find your individual states limit and requirements at the website nolhg A dot com. One of the reasons that insurance companies tend to be financially stable is that their financial health is under supervision of and frequently examined by state regulators. However, if an insurer becomes financially unstable, there is a specific process conducted by the regulator in your state. Often when an insurance regulator becomes concerned about a given insurer, the insurance department may try to find another insurer to purchase the troubled company or it may decide to give the insurer some time to improve its financial condition while under the state supervision. If this oversight process is unsuccessful, the insurance department may declare the insurer to be insolvent and seek to conserve assets to satisfy claims. If a State Guarantee Association process is activated, the association may transfer the company's obligations to a healthy insurer or pay the benefits to the policy owners itself. The Guarantee Association obtains its funds by assessing the other insurers operating in a state. But to those purchasing annuities, what truly is important to understand is that there is protection protection both from the state's direct supervision of the insurance company and secondarily from the State Guarantee Fund. Thanks for watching.