Fraternal Organization Annuities

[medx]

I was told about a fraternal by another agent that has a fully liquid annuity. Can keep it in there as long as you want and it pays a guaranteed 3%.

Problem is it is a C- rated company with serious problems. Oh, and they placed a lien against every policyholder's account last year...

I took a pass on the contracting kit...

"Oh, and they placed a lien against every policyholder's account last year..."




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[arnguy]

I know there is supposed to be a one year annuity that is a fraternal that pays 3.5% interest for one year. No other years. it is a one year product. Problem is the only one who knows about this product is another forum member and they won't tell me what it is.

I know of one, too; however, if I told you I would have to kill you!

 

[padthaiforlunch]

I know there is supposed to be a one year annuity that is a fraternal that pays 3.5% interest for one year. No other years. it is a one year product. Problem is the only one who knows about this product is another forum member and they won't tell me what it is.

The carrier is well-known, but the 4.6% fixed-rate is only for existing policyholders and it's restricted to internal use only for those times the carrier wishes to rewrite the business of blacklisted agents.

 

[VolAgent]

The carrier is well-known, but the 4.6% fixed-rate is only for existing policyholders and it's restricted to internal use only for those times the carrier wishes to rewrite the business of blacklisted agents.

Sounds like a fine, upstanding organization. Really makes you wish you could be a part of it.

 

[HarryRenard]

Who knows you may be part of them, anmd trust me there are plenty of companies that have side deals all over the place, this company just tends to be the worst.

 

[bcoughlin]

They are not covered by state guarantee fund either.

 

[JFBAgent]

They are not covered by state guarantee fund either.

And that should be uber important to the selling agent. If the economy takes another dive in 2010/11, all of these small fraternals with weak financials will not last.

 

[Larry Tew]

Fraternals work much like mutuals. The big ones like Modern Woodmen, Woodmen of the World, Thrivent, etc are just as safe as any other company with a comparable rating. The main difference is that instead of paying federal tax, they spend a comparable amount in fraternal benefits.

Typically these companies don't have the bells and whistles of some others, but they do have pretty competitive core products. I know that Modern Woodmen has a good plain vanilla fixed annuity currently guaranteeing 3% for the life of the annuity. Current rate is 3.35% I believe. They have a beginning 7% surrender but all principle is surrenderable even in the first year.

I do not believe the fraternals are excluded from state guaranty protection. This is worth verifying in your state if you are concerned.

 

[Newby]

Fraternals work much like mutuals. The big ones like Modern Woodmen, Woodmen of the World, Thrivent, etc are just as safe as any other company with a comparable rating. The main difference is that instead of paying federal tax, they spend a comparable amount in fraternal benefits.

Typically these companies don't have the bells and whistles of some others, but they do have pretty competitive core products. I know that Modern Woodmen has a good plain vanilla fixed annuity currently guaranteeing 3% for the life of the annuity. Current rate is 3.35% I believe. They have a beginning 7% surrender but all principle is surrenderable even in the first year.

I do not believe the fraternals are excluded from state guaranty protection. This is worth verifying in your state if you are concerned.

Fraternals definitely do NOT participate in the state guarantee funds.

I called the KY state insurance commissoner's office a couple of years ago to ask if that is a concern when choosing companies to sell. They said that an agent should NEVER consider the state guarantee funds in any of his decisions and if he mentions their existance to clients he can lose his license. No company is guaranteed to be "bailed out" by the state guarantee funds. Most have to pay into it but in a huge financial crisis they would not all be rescued by it.

He said any agent that uses the existance of the state guarantee funds to make sales or to persuade a client to choose one company over another is misrepresenting his products and can have action taken against him.

 

[Larry Tew]

Fraternals definitely do NOT participate in the state guarantee funds.

I called the KY state insurance commissoner's office a couple of years ago to ask if that is a concern when choosing companies to sell. They said that an agent should NEVER consider the state guarantee funds in any of his decisions and if he mentions their existance to clients he can lose his license. No company is guaranteed to be "bailed out" by the state guarantee funds. Most have to pay into it but in a huge financial crisis they would not all be rescued by it.

He said any agent that uses the existance of the state guarantee funds to make sales or to persuade a client to choose one company over another is misrepresenting his products and can have action taken against him.

I agree with everything you said, and I think the whole issue is nearly a non-issue anyway. I checked our guaranty association web site and sure enough, fraternals are not covered. I'm not sure how that one flew under my radar. One other difference with fraternals that somewhat mitigates the issue of participation is the open contract versus close contract. Fraternals have an open contract structure that allows them to assess members (policy owners) additional fees to help maintain solvency. Closed contract (not sure if any non-fraternals are open contract) may only raise premiums to policy guaranteed maximums or reduce dividends / interest to guaranteed levels with no ability to assess surcharges.

Regardless of guaranty coverage, I don't use companies with a Best's rating below A+. With so many companies at that level and higher (A++), I have no reason to go to A or A-.