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Originally Posted by Aces4
I have questions. Are annuities FDIC insured? If people stop purchasing them would the annuity company collapse from underfunding and would the current annuity holders take a bath? How does that work? (I know I could perform an internet search but it sounds as though we have many experts here regarding annuities and it appears annuity companies themselves can be very vague.)
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Dear Aces4-
When you give money to an insurance company, whether it be for a fixed annuity, immediate annuity, or to simply pay an insurance premium, that insurance company does not keep your money in an FDIC insured checking account, but invests it. Their three main investments are stocks, bonds, and real estate. So, if you are concerned about the financial health of the insurance industry, since each of these assets have performed above historical norms for several years, presently I would not be too concerned.
Currently, interest rates that insurance companies are offering are in the low- to- mid single digits. The three asset classes of stocks, bonds, and real estate have done much, much better than that for several years. The difference between what they promised to pay you and what they earned on your money can be substantial and is their profit.
You can invest in these asset classes directly, but you may lose money. So, simply put, an annuity investor is sacrificing decent gains for insurance company guarantees. Some call that peace of mind.