Credit Risk

An annuity ladder basically involves spreading annuity purchases over time. For example, instead of taking $100,000 to purchase an immediate annuity today, a person might purchase five different $20,000 annuities over a seven year period. This approach has a number of advantages: The approach helps avoid the risk of purchasing an annuity at a less then optimal time--for example when interest rates are very low. In this sense, it is somewhat similar to dollar cost averaging when investing . The...

A very balanced article in the Chicago Tribune discusses what consumers should consider when they are concerned about credit risk or the financial health of their insurance company. Dumping an existing life or annuity policy when reading headlines about the health of an insurer may not be the wisest idea. At a minimum, consumers should seek a couple of informed opinions before replacing an existing policy. There are fees and tax consequences that may come into play. In addition, there are...

The financial crisis has begun to have an impact on something known as a charitable gift annuity or simply gift annuity. Tax deductible gifts to charitable organizations can be made in exchange for the promise of guaranteed, annuity-like payments from the charity to the donor. Some charities purchase insurance policies to fund the promised annuity payments while others simply rely on existing assets and the overall financial health of the organization. Not surprisingly, financial market turmoil...

Credit risk or the possibility of company insolvency are top of mind for many people who are considering an annuity purchase. However, as indicated in the Wall Street Journal article referenced below, 90% of policyholders impacted by recent insolvencies have received full benefits--largely through a combination of remaining insurer assets and funds provided by state guaranty associations. Due diligence and--to the extent possible--some comparison shopping are encouraged before purchasing any...