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Should I switch out of my AIG policy?
Insurance regulators have been hearing reports of agents and brokers trying to get people to switch out of their American International Group (AIG) policies and buy a new policy with another company. But sometimes this move is more beneficial to the agent -- who could receive a new commission -- than to the consumer.
In fact, New York's insurance superintendent, Eric Dinallo, issued a strong statement on Monday warning people about some of these sales pitches: "If someone tells you to replace any policy because AIG insurance company is in trouble and may not be able to pay your claim, that is not only untrue, it is against the law," he said. "Don't worry and don't make any rash decisions if you have a policy issued by an AIG insurance company. All your covered claims will be paid and all your annuity checks will come."
Before you make any change, consider the downsides to switching out of an AIG policy. You may have to pay a cancellation penalty if you drop your auto or homeowners insurance policy mid-term. You may have to pay a surrender charge if you switch to another annuity (and may have to pay taxes and an early-withdrawal penalty if you cash it out). And you may need to pay higher premiums if you buy a new life insurance policy -- especially if you're a lot older than when you originally bought the insurance. Plus, you may have a much tougher time finding affordable coverage if you've developed a health condition since then.
A lot could happen in the next few weeks. AIG is developing a plan to sell some assets, which could include some of its insurance subsidiaries. If that is the case, your policy could end up with another insurer that is in even stronger financial shape -- which has happened to some troubled insurers in the past. If your policy is acquired by another insurer, the terms of the contract cannot change. The premiums you pay and any guarantees you've been promised will continue for the term of the policy.
It is important to monitor the AIG's financial status, though, which is what the regulators and ratings agencies are doing. The holding company's major life insurance subsidiaries currently have an A rating from A.M. Best, but are under review with negative implications. "At this point, the insurance subsidiaries have an excellent ability to pay claims," says Andrew Edelsberg, a vice president in A.M. Best's life/health ratings division. "AIG's life insurance companies are still highly rated, as most of the issues are at the holding company. We believe that policyholders will be paid in the long term."
All insurance regulators have strict capital requirements to make sure insurers have enough money to pay claims. Edelsberg says that the rules in New York -- where several of AIG's insurance subsidiaries are based -- are particularly strict.
If the insurance subsidiaries were to have financial troubles, state regulators would first require the insurer to implement a plan to improve its financial condition. If that didn't work, regulators would take control of the company. If the company became insolvent, insurance policies would be covered by the state guaranty associations (see What the AIG Bailout Means to You for more information). But AIG's insurance subsidiaries "weren't even close to being at that level" even before the government bailout of the holding company, says Tom Rosendale, an assistant vice president of the life/health ratings division of A.M. Best.
It's a good idea to check an insurer's financial-strength ratings before buying a policy or switching to a new one. You can check on insurers' A.M. Best financial-strength ratings from the insurance page of our Web site. Our insurance page also has links to state insurance regulators, who can help answer your questions about state consumer protections for policyholders.
POSTED BY: Rick K. Nelson (September 26, 2008 10:31 AM)
Does anyone remember Executive Life or Mutual Benefit from the late 1980's? I am a semi-retired insurance broker from those days and with first hand knowledge of the fall of Executive Life. My suggestion is to get out of AIG pronto. Just before Executive Life failed they had an AAA rating from Standard & Poor's. I met with the two employees from S&P that did the work on Executive Life just before their failure. I asked why Executive Life was still rated AAA in spite of all the concern from outside sources, such as The Wall Street Journal, Weiss, and Barron's. The answer- Executive Life is just better at it than the other companies. It reminds me of the same answers from the Enron story....All of the policyholders that stayed with Executive Life lost with frozen policies, lower rates, and increased costs. Some readers will blame the agents, like me, and think we skated free. A few did and most did not. Most of us lost our customers because we told them to hang in there. I do not blame the customer for finding a new broker in those circumstances. Some of my dear friends could not handle the embarrassment of the failure....No sympathy for us brokers. We bought into the sham hook, line, and sinker and deserve what we got. But notice how all the insurance department personnel tell you all is ok and the rating agencies assure you all is ok at AIG. Get out and get safe. History proves that. Oh, and for all the financial analysts that were in grade school during the insurance company failures of the 1980's, please do more research and learn your history, Respectfully, Rick K. Nelson
POSTED BY: EE bond holder (September 26, 2008 07:04 PM)
This whole sham began with the curtailing of the value then availability of HH bonds.
Payroll and Uncle Sam extolled the virtues and promises of being able to tax defer-exchange EE bonds for HH bonds and receive a semi-annual pay out of 6% interest.Now the HH bonds are gone and one can only buy $5000.oo of EE or I bonds a year. This is why Americans have a dismal savings rate. Wait until they change their mind on Roth IRAs being tax free!!!!
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