Tag Archives: annuity insurance

Credit Rating Agencies: Which One Should I Trust?

 

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When you’re looking through different annuity selections with your financial advisor or consultant, knowing which insurance offer to trust makes a big difference. Credit rating agencies rate insurance companies with a grade or percentage. This score assigned to each independent insurance agency indicates that company’s ability to pay policyholders’ claims.

 

The Big Four: A.M. Best, Comdex, Moody’s, and Standard & Poor’s

 

Financial rating services such as A.M. Best, Comdex, Moody’s, and Standard & Poor’s rank insurance companies based on their financial strength and stability. Before you invest in an annuity, check that annuity’s insurance provider’s ranking. These financial rating agencies are independent and they all have their own rating scale based on their own standards. Which rating service should you use?

 

A.M. Best: An A- and Above Means A Solid Insurance Provider

 

A.M. Best is a financial rating agency whose main focus is on the insurance sector. Only trust an annuity provider whose ranking is an A- or higher. A score of an A- or higher indicates a score of ‘Excellence’. This score means that your insurance company is able to pay you back the principal of your annuity as well as the claimed gain. The insurance company is secure and reliable. Superior scores are “A++” and “A+”. Scores lower than “A-” are vulnerable to economic conditions. Use this as your guide to the reasoning behind A.M. Best’s ranking.

 

Comdex: Look for 80% or Higher for Your BEST Annuity Ranking

 

Comdex is one of the best-ranking scales for insurance providers. The financial rating agency ranks insurance companies with a score from 1 to 100. Each number represents a percentage, and the higher the number, the better the ranking. The Comdex score is one of the best rankings that you can hold accountable for the security of your annuity because it takes all of the available ratings from other financial rating agencies and puts them all together.

 

Look for a score of 80 or higher. This means that of all of the rankings given to that insurance provider, the average score is higher than 80% of all other insurance companies. Why is the Comdex score the best? The Comdex ranking already includes all of the ratings given to your annuity by other agencies and tallies up their score in order to give you a neat, consensus of all the ratings put together.

Moody’s: The Less Trusted Ranking For Insurance Companies

 

Moody’s offers grades ranging from Aaa (Superior) to C (Failing). Aaa is given to the most stable financial institutions and indicates security. C is given to companies that are going through financial difficulty. The trouble with using Moody’s as a ranking system for your insurance provider is that it specifically doesn’t concentrate on future reliability. Rather, Moody’s focuses on the past.

 

Would you really want to only look at your insurance provider based on past creditworthiness? The ability to look into the future based on fiscal trends and economic outlook is important for your interest in annuities because they are typically integrated into your retirement plan, which is in the future.

 

Standard & Poor’s: The 150 Year Old Insurance Rating Organization

 

Standard and Poor’s (S&P) is one of the oldest rating agencies. It ranks a company’s creditworthiness by assessing its debt issues, company climate changes, and changes in insurance regulations. The grade given by Standard & Poor’s ranges from “AAA” to “D”. A score of “D” means that the company has defaulted on financial obligations. As the score moves up the ladder towards AAA, the vulnerability of the company decreases.

 

Standard & Poor’s should not be used by itself when judging which insurance provider deserves your hard earned cash because so many factors can affect an S&P score that doesn’t necessarily have to do with your annuity. For instance, if your insurance provider focuses solely on annuities, the S&P score is going to rank lower because the S&P doesn’t like a narrow business focus.

 

Which Credit Rating Agency Should I Use For Judging Which Annuity To Buy?

 

Great question. All four. If you can’t get access to scores from all four, choose Comdex and A.M. Best. These rating agencies focus on the insurance industry, rather than the business sector like the S&P and Moody’s. Therefore, if you can only squeeze two scores out of your financial advisor, choose Comdex and A.M. Best, whose standards reflect an insurance companies ability to pay back long term investments and retirement-focused financial obligations. Remember, your minimum Comdex score should be 80 and your minimum A.M. Best score should be A-. 

Who Can You Trust With Your Money: FDIC Insured Banks Vs. Annuities

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FDIC Vs. Insurance Providers: Are You Protected?

The federal government requires banks to keep 10% of your CD in reserves. 10 cents of every dollar you’ve deposited is in your banks reserves. This goes for money market accounts as well as any money that you put in your bank account. On the other hand, state insurance commissioners regulate annuities. This creates a major difference because insurance companies have to keep 100% of your annuity. That means 1 dollar for every dollar of your investment. According to Forbes, if you wanted to take your annuity out of the insurance company and liquidate that asset, you would walk away with the current value of the annuity plus the current value of future obligations on those contracts.

Breaking It Down: What Is The FDIC Good For?

The FDIC has a coverage limit of up to $250,000 per depositor, per insured bank. If you share an investment account with your spouse, however, you split that $250,000 insurance coverage limit 50/50. FDIC does not insure your money market accounts, CD’s, annuities, stocks, bonds and any other financial instruments.

Lehman Brothers and Bear Stearns closed their doors, causing an earthquake in investor confidence. And there’s no need to go into detail of how many high-end investors had their hopes of an ROI dashed from the Bernie Madoff scandal. Consequently, the Reserve Primary Fund temporarily ensured mutual funds. Your FDIC confidence extends only as far as your dedication to what we’ve always been told, no matter how much it actually protects you. Annuity protection, more often than not, exceeds the insurance limit of the FDIC.

The New Financial Trend That Has Investors Sleeping Easy

The FDIC covers up to $250,000 if banks go belly up. But what about our annuities? State laws govern what happens to your annuities after you insurance fails and goes into liquidation. In Florida, for instance, your annuity is insured up to $300,000 for each contract owner. Annuities are guaranteed in Florida far more than your bank’s FDIC insurance is able to guarantee your CD’s and money market account and other financial instruments. How? If you and your spouse each have a contract, you are both ensured up to $600,000 together, rather than the flat $250,000 insurance that the FDIC extends. With annuities, you can maximize your coverage by investing in an annuity from multiple insurance lenders.

See my blog on how much protection your annuities have state by state in case of litigation, bankruptcy or debt collectors and creditors.