AIG - What happens to my structured settlement if the insurance company goes broke?
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AIG Bailout – Financial Troubles – What will happen to my settlement if AIG goes bankrupt?
Clients in every state are asking the question about AIG and whether or not their structured settlement or annuity payments are safe. Generally speaking, annuity contracts are the same as most personal injury structured settlements. You were told you received a structured settlement, and you did; but the insurance industry refers to it as an annuity payment from an annuity contract. First I’ll warn you that annuity agreements can be very different. What one annuity contract states may be different than another. Don’t take advice from some guy you meet at the doctor’s office waiting room just because he too has a structured settlement. Terms of annuity contracts are different and you’ll need someone to review the terms of your individual policy contract. You need professional advice about the terms of your agreement. Each of you should obtain a formal opinion from a qualified lawyer or financial adviser in your state or territory.
There are several articles on the InjuryBoard covering this subject. John Hopkins did a good job of explaining the overall problem. Jane Akre’s post is just as informative. And Brooks Schuelke hit the nail right on the head with what I intend to discuss. This post will go one step farther concerning Iowans with an annuity contract and then discuss something we all need to understand. Many of you are considering selling your annuity contract for a lump sum; believing some is better than none if AIG goes bankrupt? Well take a breath and sit down. You need to stop and think about why someone wants to purchase your structured settlement.
RELEVANT ARTICLES ON THE INJURYBOARD (Not complete)
· AIG: The Giant Stumbles, John Hopkins
· AIG Bailout - Is My Policy Safe?, Brian Smith
· Personal Injury, AIG and Structured Settlements, Jane Akre
· What Happens To Personal Injury Claims If AIG Fails?, Brooks Schuelke hits the nail on the head.
Like Brooks stated in his article about Texas law, Iowa has a guaranty fund that protects policy holders with $300,000.00 of protection in the event an insured goes broke; or becomes insolvent.
Iowa Guaranty Fund - GUARANTY FUND
The mechanism by which solvent insurers bail out the policyholders of companies that fail. Such a fund is required in all 50 states, the District of Columbia, and Puerto Rico, but what is included varies from state to state.
Iowa Insurance Division, does provide a guaranty fund program.
The insurance division has an online list of Iowa licensed insurance companies, of which AIG is listed. AIG Annuity Insurance Company. 205 East 10th Avenue, Amarillo, TX 7901, 800-424-4990. Iowa insurance company code is 1721. The AIG insurance company details are shown on the Iowa Insurance Division website.
Those details are:
To file a complaint with the Iowa Insurance Division follow the link, download the forms, fill out and send in to the IID. But don’t send in a complaint form until you’re notified there is a problem or that AIG has gone broke, become insolvent or is in receivership.
A roster of state guaranty funds is shown on the site. For further information contact the IID at 330 Maple Street, Des Moines, Iowa 50319-0065. Phone 515-281-5705, Toll free 877-955-1212 or fax 515-281-3059.
The IID issued press release concerning AIG on September 23, 2008.
· "Don't worry and don't make any rash decisions if you have a policy issued by an AIG insurance company," Voss said. "All your covered claims will be paid and all your annuity checks will come. Making sure insurance companies are solvent and able to pay every valid claim is my number one job, and the AIG insurance companies are strong and solvent."
AIG Frequently Asked Questions and Answers
· Question: Is AIG going bankrupt?
· Answer: AIG is an international financial holding company with numerous businesses.
· Your insurance and annuity policies are written by AIG's insurance companies. Those companies are financially strong and their assets are protected by state regulators.
· Question: Are the insurance and annuity policies I purchased from AIG safe or am I going to lose my money?
· Answer: Your policies are safe. AIG's insurance companies are financially strong and fully able to honor all policyholders' claims. The Iowa Insurance Division will continue to closely monitor the situation to ensure policyholders are protected and that there will continue to be sufficient assets to pay claims.
And here is the point of all of this: People want you to panic. Like the stock market there are two things that drive price, and both are emotions. Fear and greed are those two emotions. When greed is a driving factor, the market prices rise above realistic levels (intrinsic value) until fear begins to take over. Fear will drive the market prices below intrinsic value. When fear is driving the market price down, shrewd businessmen and woman will contact you to buy up your settlement annuity and make a huge profit. These are value investors. They buy when prices are cheap! That extra profit they earn will be your equity. They win and you lose. That is true because you’re selling the annuity too cheap. Your selling price is lower than the intrinsic value. That’s what value investors like; you to panic or to make a decision to sell when you fear the sky is falling!
Let me give you an example. Let’s say my son owns a car. It’s the only sellable asset he owns. It has a market value of $10,000.00 and he owns it outright. (No loan.) He gets himself in a financial jam and has to come up with $2,500.00 to pay the bill for the stereo he bought with a bank loan. The bank will come in and take the stereo if he doesn’t come up with the loan payment. To avoid losing the stereo he decides to sell his car. He loves listening to music more than he likes driving the $10,000.00 car. His friend who has $10,000.00 in cash knows about his stereo loan problem. He knows my son is really hot up to come up with the loan payment because he’s about to lose his much-loved stereo. He knows that my son is “anxious” to sell the car and knows about him having the $10,000.00 in cash. He’s available and flush with the dough so my son being anxious will in all likelihood accept less than $10,000.00 for the car. So he offers him $8,000.00 in cash payable immediately for him signing over the car title. If my son’s emotions drive the sale he’ll sell the car for less than the $10,000.00 market value. And that’s my point to you.
If you sell your annuity for less than it is worth you are giving away the equity in the annuity. Annuities are just investment instruments that guarantee the owner to a stream of payments. There is a simple formula used to calculate the present value of an income stream, such as annuity payments. It’s called a T-bar. To perform the calculation you need a HP financial calculator. More specifically you will need the HP 10bII Business Calculator. Online the price is $29.99. So if you’re even considering selling your structured settlement buy the calculator and learn how to solve for the present value of a cash flow, see an attorney or a financial adviser and then exercise caution and patience.
Tomorrow I’ll print the list of Property & Casualty Insurance Guaranty Associations.