"What happens to my annuity if my insurance company fails" is a natural and very common question in light of the financial crisis.

Many people who have or are considering annuities are concerned about credit risk.  In other words, there are concerned about will happen to their annuity if the insurance company that provided the product goes out of business.

There are many, many different types of annuities. 

To begin with, it makes sense to think about the general definition of an annuity.  An annuity is a contract that converts a sum of money into a series of periodic payments for an agreed upon period of time. An annuity can be thought of as a financial vehicle that converts a pool of money into a stream of income.

There has been a ton of recent discussion in the press about the financial health of life and annuity insurance companies.  In particular, there has been discussion surrounding the health of insurance companies that have provided living benefit guarantees that accompany variable annuities.

It is perfectly reasonable to be concerned about the ability of insurers to make good on their financial commitments.  With annuities, many of the contracts are long-term and involve large amounts of money that represent a significant portion of the policuholder's net worth.

Annuities are products that combine insurance and, in the case of variable annuities, asset management.  Costs are absolutely critical, so definitely ask you financial advisor to spell-out the costs for each of the items discussed below.