The Value of a Guarantee

Guarantees are made all the time in the insurance world. Annuities are no stranger to them. However, it has been my experience that many retirees or people considering annuities think a company’s future promise of payments is equivalent to receiving interest on a government treasury. I will be the first to tell you that not all guarantees are created equal. What good is an insurer’s guarantee of a future annuity payment if that same insurer is not financially sound? If that insurer no longer exists or is wiped out due to lack of hedging or subprime exposure, your guarantee will become null and void.

Part of my fiduciary responsibility to my clients is to not only look at the guarantees of the product but to consider the claims-paying ability of the insurer underwriting the product. I focus on the company’s balance sheet, track record, credit ratings, and history. All of these factors should not be overlooked.