Are Fixed Annuities Safe?

You have worked hard to save money, and as you are near or reach retirement, you don’t want to take unnecessary risks with these funds. Yet you want to invest your savings to earn a competitive rate of return. Perhaps you have heard of a vehicle known as a fixed annuity, but you have some reservations with regard to the safety of your investment. You are not alone. Choosing the right mix of investments can be difficult.  Experts agree that the concept of “diversification” should drive your purchase decisions. Among the safest components of a diverse portfolio are fixed annuities, due to features like guaranteed return of principal, tax deferral on gains, access to funds, payment options (including payments for life) and the elimination of probate for benefits. But how safe are fixed annuities and are they insured by the FDIC like savings accounts?

Let’s answer the second question first. Annuities are not insured by the FDIC because annuities are not bank products. However, insurance companies are required by state law to protect their outstanding annuity contracts with cash reserves on a dollar for dollar basis. Furthermore, all insurance companies are reviewed by major rating agencies such as A.M. Best, Moody’s and Standard and Poor’s, which rate insurance companies based on financial viability and their ability to pay claims. As a consumer, you should pay attention to these ratings and other factors about the company providing the annuity such as, the number of years they have been in business. Speaking of which, Vantis Life Insurance Company has been in business since 1942 with an A (Excellent) rating from the A.M. Best.  Vantis Life is also a subsidiary of Penn Mutual Life Insurance Company which has been in business since 1847. 

Under state insurance law, a fixed annuity provides you with a competitive fixed interest rate for a select period of time and a guaranteed minimum rate of interest, stated in your contract. Another important fact to remember is that fixed annuities usually provide a larger rate of return than Certificate of Deposits and high yield savings accounts. This is due to the fact that annuities offer tax deferral on their gains, so your money grows faster. Fixed annuities are very conservative, safe investments for retirement funds.

It is important to note that investing in fixed annuities may not match the returns you can achieve in the stock market, but you can sleep well, knowing that your nest egg will not be subject to market fluctuations and risks inherent in other investment vehicles. You can rest assured that regardless of how the market behaves, bullishly, bearishly, statically, your fixed annuity will not lose its value and will continue to grow!