Email Article Print Article

AIG Going Bankrupt? Find out What Would Happen If You were a Policy Holder?

By Rob Lambert - Email Editor

Date : October 14, 2008

AAA Ratings—Do they really mean anything?

There is a running debate in the insurance field about whether it is better to use an AAA company like AIG and Pac Life or whether it’s better for clients to use an A or AA company when purchasing life insurance and/or annuities.

I’ve been fairly consistent with my stance, which goes something like the following:

-If a client wants a better product, then look to an A or AA company.

-If a client wants to “feel secure” that the insurance company has good “ratings,” then use a company like AIG or Pac Life.

Equity Indexed Life Insurance (EIUL) as an example

Most of you know that my preference to help clients build tax favorable wealth for retirement is a “good” EIUL policy. I think so much of building wealth through EIUL policies that I created a flash PowerPoint presentation you can view to learn the values for yourself.

You can view that presentation at the following link.

You may also want to purchase my Home Equity Management Guidebook: How to Achieve Maximum Wealth with Maximum Security where I have the best summary on EIUL in the industry. To learn about the book, please click here.

I prefer to use a product called Revolutionary Life because it is a tremendous cash accumulator and has the best FREE riders in the industry. Additionally, I know the president of the company personally (who’s been with the company for over 20 years) and I believe that he will do everything in his power to keep his company “conservative” and financially sound.

The company that offers Revolutionary Life is an “A” rated carrier. It may surprise many readers to learn that many of the products sold by A rated insurance companies are much more competitively priced than AAA carriers. Now with AIG having issues, it gives us one less reason to gravitate to a AAA carrier especially when many times their products are inferior to the A rated carriers.

What happens when an insurance company goes bankrupt?

When an insurance company fails and cannot remain solvent, thereby pushing itself into bankruptcy, the worst thing in the world happens; the department of insurance takes over the company and starts to liquidate it.

The commissioner (or someone appointed by the commissioner) seeks to maximize the company’s assets, transfer them to cash, and then distribute that cash to creditors having valid claims against the insurer in accordance with payment priorities specified by state law.

Guaranty Associations

State life and health insurance guaranty associations are state entities created to protect policy holders of an insolvent insurance company. Once the liquidation is ordered, the guaranty association provides coverage to the company’s policyholders who are state residents (up to the limits specified by state laws—see below). For a complete listing of each state’s laws regarding this coverage, see the State Guaranty Laws and Provisions in the “Facts & Figures” section.

Guaranteed Coverage

While laws governing maximum limits and types of policies covered vary from state to state, most states set basic limits of:

The overall benefit “cap” in most states for an individual life is $300,000, though some states have maximums that are higher.

Much of the above and more can be found at www.nolhga.com.

Summary

It is vitally important to work with a company that you can trust. Ironically, in this industry, it’s very difficult to find a company that is trustworthy. I personally do not get caught up in the “Ratings” of a company. Instead I try to find out about the people running the company (if possible) and try to determine for myself if the company is run in a “conservative” manner.

If you have questions about your current life insurance company or policy, please feel free to contact info@trustmakers.com.

Until next week,

Roccy M. DeFrancesco, JD,CWPP, CAPP, MMB

RELATED ARTICLES:

• Protect the equity in your home
• Asset Protection Plans
• C.A.L.M. Introduction
• Get educated on Asset Protection