Is my fixed account holding reasonably safe?

[Prudence]

I have a "fixed account" with a major life insurance company. It is like a savings account. Account holders are guaranteed a fixed rate on cash balances; the company may change the guaranteed rate (up or down), but, it has remained the same for many years. The interest rate is very attractive but the rate and the principal are backed only by the company's promise (not backed by any assigned holdings of the company). Effectively, my principal in the fixed account has the same guarantee as an insurance policy issued by the company. This company is very old and well known, has a solid history, and has an A+ rating (Superior) from A.M. Best. It is stable. The account is not backed by any agency that I know of such as FDIC. I think this is a low risk investment but am wondering if I am overlooking something?

[dbr]

Someone much more knowledgeable than I am might be able to put numbers on the probability of how much loss could happen. It will be small.

My approach to a question like that is the same as how I would view a stable value fund or an SPIA (fixed annuity) or a pension. That would be that depending on that item for 100% of my wealth or income would be very risky and depending on that item for perhaps one fourth of my needs would be very safe. In between it is in between.

I don't know if that is a helpful perspective.

[Prudence]

Yes, very helpful, sound advice, thanks again dbr.

[Jack FFR1846]

What exactly is this? It could fall within what a salesman might say to sell a whole life policy. He steers your focus on the "expected" rates and hides the guaranteed rates and fees and insurance cost behind the curtain. Is there a penalty to pull money out? Was a promise of "tax free" returns put fourth? Without knowing exactly what this instrument is, it's tough to evaluate it.

[bottlecap]

There is no way to answer your question except to say if your "fixed" holding gives you a better rate than cash, it is certainly at more risk than is cash.

How much more is impossible to tell because you don’t have, and will never have, an idea about how much risk is being taken with the investment they have the money invested in. The fact that the company has a solid rating may be of some help, however.

Good luck,

JT

[cheese_breath]

Ask the Insurance Guarantee Association for your state. To find out who that is start here:

https://www.nolhga.com/

Then click Contact Us

Then go the box that says Choose Yur State Association

[Prudence]

Thanks, I will ask them. I do have term life insurance from this A+ company, through a professional association, which would fall within the scope of this association. Policy holders like me also have an option to invest in various funds including this fixed account which has a fixed rate on cash contributions and tax benefits. This fixed account is not life insurance or annuity, so, I don't think it would be covered by this association, but, I will find out. The web site you included has a list of insurance companies which have failed since 1983 and I would not have trusted any of them. I bet they offered risky policies to unsuspecting holders who were lured by overly generous terms and cheap premiums. Anyway, the list of failed companies gives me some comfort because I don't see any major, well-known, solid, stable companies. Thx.

[cheese_breath]

... The web site you included has a list of insurance companies which have failed since 1983 and I would not have trusted any of them....

Glad you mentioned that. The EDS 401K shortly after its acquisition by GM included a 'savings account' like option with Executive Life (on the list you mentioned). I don't know if those who contributed got anything back, but I heard some grumbling from them.

[Snezz1e]

I'm in a similar situation to OP and have been thinking about the same thing.

I've had AICPA's GVUL Insurance policy for about 10 years. They have a fixed account that pays 4% guaranteed. $10 withdrawal charge. No other charges/fees on money going in and out.

Insurance policy is through Prudential which has a A+ rating.

Insurance Guarantee Association for my state protects up to $100k cash value.

I'm allowed to put up to about $200k without triggering MEC.

I'm currently under $100k but will exceed that soon since I'm storing most of my cash savings here due to low interest rates.

My current plan is to monitor Prudential's rating on a monthly basis. If their ratings drop to A-, I would withdraw what I need to bring myself under 100k. If the ratings drop below A- I would withdraw even more.

My reasoning (which may end up not being true) is that an A+ rated company wouldn't go bankrupt so fast that I couldn't withdraw my money in time. Looking at recent insurance bankruptcies the insurance companies had a rating well below A- for awhile before they declared bankruptcy. AIG in 2008 and Executive Life in 1991 are exceptions. They both were in unique situations at the time and the ratings agencies have adjusted their standards to prevent the same thing from happening again.

[Nate79]

This previous post on the safety of insurance companies in reference to buying MYGA's might be relevant to the discussion:

viewtopic.php?p=5435915#p5435915

[Stinky]

Thanks, I will ask them. I do have term life insurance from this A+ company, through a professional association, which would fall within the scope of this association. Policy holders like me also have an option to invest in various funds including this fixed account which has a fixed rate on cash contributions and tax benefits. This fixed account is not life insurance or annuity, so, I don't think it would be covered by this association, but, I will find out. The web site you included has a list of insurance companies which have failed since 1983 and I would not have trusted any of them. I bet they offered risky policies to unsuspecting holders who were lured by overly generous terms and cheap premiums. Anyway, the list of failed companies gives me some comfort because I don't see any major, well-known, solid, stable companies. Thx.

Just curious - what type of product did this “fixed account”’ come from? Is it a variable annuity or variable life policy? Is it something related to a retirement savings plan, like 401(k) or 403(b)? Or something else?

I strongly suspect that you do have guaranty fund coverage. But you need to provide more details to be sure.

There have been no failures of large life insurance companies in the US since the 1990s. Executive Life, First Capital, and Mutual Benefit all failed prior to that time. Regulators have significantly strengthened solvency regulations since that time.

There’s an overwhelming likelihood that your money is 100% safe with an A+ company.

[Stinky]

I'm in a similar situation to OP and have been thinking about the same thing.

I've had AICPA's GVUL Insurance policy for about 10 years. They have a fixed account that pays 4% guaranteed. $10 withdrawal charge. No other charges/fees on money going in and out.

Insurance policy is through Prudential which has a A+ rating.

Insurance Guarantee Association for my state protects up to $100k cash value.

I'm allowed to put up to about $200k without triggering MEC.

I'm currently under $100k but will exceed that soon since I'm storing most of my cash savings here due to low interest rates.

My current plan is to monitor Prudential's rating on a monthly basis. If their ratings drop to A-, I would withdraw what I need to bring myself under 100k. If the ratings drop below A- I would withdraw even more.

My reasoning (which may end up not being true) is that an A+ rated company wouldn't go bankrupt so fast that I couldn't withdraw my money in time. Looking at recent insurance bankruptcies the insurance companies had a rating well below A- for awhile before they declared bankruptcy. AIG in 2008 and Executive Life in 1991 are exceptions. They both were in unique situations at the time and the ratings agencies have adjusted their standards to prevent the same thing from happening again.

I’d feel really, really solid with Prudential. It’s hard to imagine a set of circumstances that pushes their rating to A-

For info - the AIG life companies didn’t fail in 2008. The bad assets and CDS were held outside of the life companies. AIG did have financial problems in 2008, but the life companies weren’t the source of the problem.