What if the Insurance Company Goes Out of Business?
- Thread starter jn8691mr
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- 11,275
You "could" compare to FDIC and how banks have fractional reserves versus insurance companies with 100% legal reserves. Insurance companies have to have the actual cash on hand in order to pay out promised contractual guarantees.
If you do this, just remember that banks are insured by the federal government and can print money in order to make depositors whole. Don't inspire any fear in the banking system.
Fractional Reserve Banking Definition | Investopedia
For me, I talk about how I chose the companies I've chosen to work with.
Primarily, I like companies that have a long history, good ratings, hasn't been bought/sold recently (if at all), and kept the same name for a long time.
Not every company can meet those criteria.
Of course, you can talk about guaranty associations... but that seems like a weak position to be in.
http://www.annuityadvantage.com/stateguarantee.htm
If you do this, just remember that banks are insured by the federal government and can print money in order to make depositors whole. Don't inspire any fear in the banking system.
Fractional Reserve Banking Definition | Investopedia
For me, I talk about how I chose the companies I've chosen to work with.
Primarily, I like companies that have a long history, good ratings, hasn't been bought/sold recently (if at all), and kept the same name for a long time.
Not every company can meet those criteria.
Of course, you can talk about guaranty associations... but that seems like a weak position to be in.
http://www.annuityadvantage.com/stateguarantee.htm
That answer depends wholly on from where you're moving the money.....
I answer this question few ways. One is what if the insurance company they invest in goes under and what if all the insurance companies go under. I first talk about how the company invests the money they collect. If you are selling fixed immediate annuities, a mutual company is most likely invest that in immediate and long term US government bonds. The chances of US government going bankrupt is pretty low but this is where I stop and ask back how do they feel the likelihood of US Government going bankrupt. Most people dont believe the US government will go bankrupt. Then the biggest risk for the annuity company is that everyone who has bought an immediate annuity lives to be 100 years old or more. Annuity company is counting on folks dropping dead early. Fortunately, the life expectancy while slowly increasing does not make sudden changes like that. Annuity company has a very good idea how many of its customers based on their current age will live. They also buy re-insurance.
As a business model, banks borrow short term money from us in the form of checking/savings and cd's and then lend this to someone for 5 or 10 years to make a difference. If we did not have FDIC this type of business relationship would never work, too many things would go wrong. Banks borrow short lend long.
Annuity companies as a business model, borrow long term for us and lend to someone long term ( they buy government and corporate bonds). This is less riskier then a commercial bank. Annuity company borrow long lend long.
I dont like to sell insurance companies 176 year or whatever history, or their credit rating. Enron was rated AAA one week before it filled for bankruptcy, 1 rouge trader bankrupted Barings bank in 1995. These things happened in my lifetime.
As a business model, banks borrow short term money from us in the form of checking/savings and cd's and then lend this to someone for 5 or 10 years to make a difference. If we did not have FDIC this type of business relationship would never work, too many things would go wrong. Banks borrow short lend long.
Annuity companies as a business model, borrow long term for us and lend to someone long term ( they buy government and corporate bonds). This is less riskier then a commercial bank. Annuity company borrow long lend long.
I dont like to sell insurance companies 176 year or whatever history, or their credit rating. Enron was rated AAA one week before it filled for bankruptcy, 1 rouge trader bankrupted Barings bank in 1995. These things happened in my lifetime.
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Just tell them the company is too big to fail...
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