MYGA: State Insurance Coverage

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Van
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MYGA: State Insurance Coverage

Post by Van »

The Pennsylvania Life & Health Guaranty Association covers annuities as follows:

$300,000 if the contract has been annuitized
$100,000 if the contract is in deferred status

Am I correct in assuming that by their very nature all MYGAs have been annuitized?

Anyone know what the deferred status refers to? Some annuity other than a MYGA, I assume. I'm thinking about buying at the $300,000 level, so it is important to know if I have anything to worry about.

Thank you. Van
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Stinky
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Re: MYGA: State Insurance Coverage

Post by Stinky »

Van wrote: Mon Sep 21, 2020 3:06 pm The Pennsylvania Life & Health Guaranty Association covers annuities as follows:

$300,000 if the contract has been annuitized
$100,000 if the contract is in deferred status

Am I correct in assuming that by their very nature all MYGAs have been annuitized?

Anyone know what the deferred status refers to? Some annuity other than a MYGA, I assume. I'm thinking about buying at the $300,000 level, so it is important to know if I have anything to worry about.

Thank you. Van
I believe that annuities in “payout” status, like SPIAs, have been “annuitized”.

Other annuities, like MYGAs, are “deferred”.

Sorry that you’ve got such a skimpy limit in PA.
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Van
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Re: MYGA: State Insurance Coverage

Post by Van »

Thanks Stinky, but your answer is not what I was hoping for. I believe you are considered very knowledgeable in this area, and so, your answer is probably correct. I'm glad I asked, as it would appear that I best limit my MYGA purchases to a maximum of $100,000.

Perhaps some others will confirm what you said.
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HueyLD
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Re: MYGA: State Insurance Coverage

Post by HueyLD »

MYGAs can be annuitized at the end of the contract term. Until then, they are in deferral status.
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Re: MYGA: State Insurance Coverage

Post by Van »

Thanks HueyLD. It's not looking good. Looks like a $100,000 limit in PA.
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Re: MYGA: State Insurance Coverage

Post by Stinky »

Van wrote: Mon Sep 21, 2020 3:49 pm Thanks HueyLD. It's not looking good. Looks like a $100,000 limit in PA.
You could call the PA guaranty fund for the story from the horse’s mouth. Its number should be on its website.

You could consider exceeding your $100k limit if you were planning to buy from higher rated companies (say A+ or A++) for shorter durations (like 5 years or less). Your call entirely.
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Re: MYGA: State Insurance Coverage

Post by ResearchMed »

Are those limits in total per person?
Or are those limits per person for each insurer, so one could use 2 or 3 different annuities from different insurers?
And would an individual annuity count separately from a joint annuity where there is a couple involved? This alone would give couples 3x the coverage while both are alive, instead of just 2x with two individuals.

I thought this latter (separate insurers increase the total pooled state coverage per person) was the case, but I could be confusing it with FDIC insurance coverage...?

RM
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Re: MYGA: State Insurance Coverage

Post by Van »

ResearchMed wrote: Mon Sep 21, 2020 6:21 pm Are those limits in total per person?
Or are those limits per person for each insurer, so one could use 2 or 3 different annuities from different insurers?
And would an individual annuity count separately from a joint annuity where there is a couple involved? This alone would give couples 3x the coverage while both are alive, instead of just 2x with two individuals.

I thought this latter (separate insurers increase the total pooled state coverage per person) was the case, but I could be confusing it with FDIC insurance coverage...?

RM
Good point........$100,000 per insurer or per person??? If per insurer, one could have virtually unlimited protection. I'll go to the website and see if I can get the answer.
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Re: MYGA: State Insurance Coverage

Post by Van »

I think it might be $100,000 per insurance company. However, I could not find a clear cut statement to that effect on the PA website. So, I emailed a question. It's late on the east coast, so I don't expect an answer very soon. Moreover, it's the state of PA. :D
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Re: MYGA: State Insurance Coverage

Post by Stinky »

Van wrote: Mon Sep 21, 2020 6:50 pm I think it might be $100,000 per insurance company. However, I could not find a clear cut statement to that effect on the PA website. So, I emailed a question. It's late on the east coast, so I don't expect an answer very soon. Moreover, it's the state of PA. :D
It would be typical for it to be $100k per person per company. So husband and wife could each buy a $100k annuity from a company.

I agree it’s best to confirm with the fund. And call them back if the email isn’t crystal clear.
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Re: MYGA: State Insurance Coverage

Post by MikeG62 »

Van wrote: Mon Sep 21, 2020 3:49 pm Thanks HueyLD. It's not looking good. Looks like a $100,000 limit in PA.
Same limit in NJ and the reason I have not pursued a MYGA. I
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Re: MYGA: State Insurance Coverage

Post by fsrph »

I'm glad I stumbled upon this thread. I'm also from Pennsylvania and have been considering a MYGA. There is a lot of references online that state Pa guarantees up to 300K. I think this is incorrect for a MYGA. The Pa website guarantee association, https://www.palifega.org, doesn't provide a clear answer what the coverage is if you use multiple insurance companies. I hope the OP gets a clear response to their email.

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Re: MYGA: State Insurance Coverage

Post by HueyLD »

ResearchMed wrote: Mon Sep 21, 2020 6:21 pm Are those limits in total per person?
Or are those limits per person for each insurer, so one could use 2 or 3 different annuities from different insurers?
And would an individual annuity count separately from a joint annuity where there is a couple involved? This alone would give couples 3x the coverage while both are alive, instead of just 2x with two individuals.

I thought this latter (separate insurers increase the total pooled state coverage per person) was the case, but I could be confusing it with FDIC insurance coverage...?

RM
“ The coverage limits are per customer, per company. For example, say a state coverage limit was $250,000 and a person owned $1 million in $100,000 annuities at 10 different companies. If three of the companies became insolvent, the coverage would be for $300,000 because the coverage limit would apply to each company’s policy.”
https://www.annuity.org/annuities/regul ... ociations/
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Re: MYGA: State Insurance Coverage

Post by Van »

fsrph wrote: Tue Sep 22, 2020 9:09 am I'm glad I stumbled upon this thread. I'm also from Pennsylvania and have been considering a MYGA. There is a lot of references online that state Pa guarantees up to 300K. I think this is incorrect for a MYGA. The Pa website guarantee association, https://www.palifega.org, doesn't provide a clear answer what the coverage is if you use multiple insurance companies. I hope the OP gets a clear response to their email.

Francis
I also read the link you noted and came away with not having a clear answer.

PA has not responded to my email. If I don't hear from them by tomorrow, I'll try again.

However, the link sent by HueyLD suggests PER COMPANY rather than per person.
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Re: MYGA: State Insurance Coverage

Post by Van »

HueyLD wrote: Tue Sep 22, 2020 11:05 am
ResearchMed wrote: Mon Sep 21, 2020 6:21 pm Are those limits in total per person?
Or are those limits per person for each insurer, so one could use 2 or 3 different annuities from different insurers?
And would an individual annuity count separately from a joint annuity where there is a couple involved? This alone would give couples 3x the coverage while both are alive, instead of just 2x with two individuals.

I thought this latter (separate insurers increase the total pooled state coverage per person) was the case, but I could be confusing it with FDIC insurance coverage...?

RM
“ The coverage limits are per customer, per company. For example, say a state coverage limit was $250,000 and a person owned $1 million in $100,000 annuities at 10 different companies. If three of the companies became insolvent, the coverage would be for $300,000 because the coverage limit would apply to each company’s policy.”
https://www.annuity.org/annuities/regul ... ociations/
HueyLD,
Thank you so much for the link. That sure indicates the max coverage is per policy with each insurance company. However, I would sure like to have PA repsond to my email confirming it's per company and not per person.
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Re: MYGA: State Insurance Coverage

Post by Stinky »

Van wrote: Tue Sep 22, 2020 1:45 pm
HueyLD wrote: Tue Sep 22, 2020 11:05 am
ResearchMed wrote: Mon Sep 21, 2020 6:21 pm Are those limits in total per person?
Or are those limits per person for each insurer, so one could use 2 or 3 different annuities from different insurers?
And would an individual annuity count separately from a joint annuity where there is a couple involved? This alone would give couples 3x the coverage while both are alive, instead of just 2x with two individuals.

I thought this latter (separate insurers increase the total pooled state coverage per person) was the case, but I could be confusing it with FDIC insurance coverage...?

RM
“ The coverage limits are per customer, per company. For example, say a state coverage limit was $250,000 and a person owned $1 million in $100,000 annuities at 10 different companies. If three of the companies became insolvent, the coverage would be for $300,000 because the coverage limit would apply to each company’s policy.”
https://www.annuity.org/annuities/regul ... ociations/
HueyLD,
Thank you so much for the link. That sure indicates the max coverage is per policy with each insurance company. However, I would sure like to have PA repsond to my email confirming it's per company and not per person.
I clicked through to the PA fund website. I agree that the language is somewhat opaque, at the very best.

If you don’t get a response to your email soon, I suggest that you give them a call.
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Re: MYGA: State Insurance Coverage

Post by HueyLD »

It is a good idea to confirm with the official source. As you know, insurance is regulated at the state level and every state can have its own unique rules.

In my state, annuities in payout status are guaranteed for up to $250k, per customer and per insurance company. Thus, one way to diversify is to own annuities from different insurance companies up to the guaranty maximum per company.

Good luck getting an official answer.
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Re: MYGA: State Insurance Coverage

Post by vineviz »

fsrph wrote: Tue Sep 22, 2020 9:09 am I'm glad I stumbled upon this thread. I'm also from Pennsylvania and have been considering a MYGA. There is a lot of references online that state Pa guarantees up to 300K. I think this is incorrect for a MYGA. The Pa website guarantee association, https://www.palifega.org, doesn't provide a clear answer what the coverage is if you use multiple insurance companies. I hope the OP gets a clear response to their email.

Francis
It’s pretty clear to me that the coverage in PA is up to $300k per individual, regardless of how many insurance companies are involved.

You can buy one $300k MYGA or six $50k MYGAs and still be fully covered by the guarantee association.
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Re: MYGA: State Insurance Coverage

Post by fsrph »

vineviz wrote: Tue Sep 22, 2020 5:02 pm
fsrph wrote: Tue Sep 22, 2020 9:09 am I'm glad I stumbled upon this thread. I'm also from Pennsylvania and have been considering a MYGA. There is a lot of references online that state Pa guarantees up to 300K. I think this is incorrect for a MYGA. The Pa website guarantee association, https://www.palifega.org, doesn't provide a clear answer what the coverage is if you use multiple insurance companies. I hope the OP gets a clear response to their email.

Francis
It’s pretty clear to me that the coverage in PA is up to $300k per individual, regardless of how many insurance companies are involved.

You can buy one $300k MYGA or six $50k MYGAs and still be fully covered by the guarantee association.
Ok, but the Pa website also says,

"Are all policies fully protected?

Not always. If your insurance company fails, the maximum amount of protection provided by the Pennsylvania guaranty association for each type of policy, no matter how many of that type of policy you bought from your company, is:

Life Insurance Death Benefit: $300,000 per insured life
Life Insurance Cash Surrender: $100,000 per insured life
Health Insurance Claims: $300,000 per insured life
Annuity Benefits as of Date of Insolvency:
$300,000 if contract has been annuitized
$100,000 if contract is in deferred status"

The last three lines - isn't a MYGA in deferred status therefore the insured limit is 100K?

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Re: MYGA: State Insurance Coverage

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fsrph wrote: Tue Sep 22, 2020 5:49 pm $300,000 if contract has been annuitized
$100,000 if contract is in deferred status"

The last three lines - isn't a MYGA in deferred status therefore the insured limit is 100K?
No, a MYGA is not a deferred annuity.

The tax on the income is deferred until withdrawn, but contract itself is not "in deferred status".
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Re: MYGA: State Insurance Coverage

Post by Stinky »

vineviz wrote: Tue Sep 22, 2020 6:37 pm
fsrph wrote: Tue Sep 22, 2020 5:49 pm $300,000 if contract has been annuitized
$100,000 if contract is in deferred status"

The last three lines - isn't a MYGA in deferred status therefore the insured limit is 100K?
No, a MYGA is not a deferred annuity.

The tax on the income is deferred until withdrawn, but contract itself is not "in deferred status".
I’m sorry, but I think this is incorrect.

An annuity in “annuitized” status is one whose payouts have begun, like a SPIA. All other annuities, including MYGAs, are “deferred”; that is, annuity payments have not yet begun.

Taxes on MYGAs are deferred. But that’s a separate concept.
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Re: MYGA: State Insurance Coverage

Post by Van »

From what I've read after this thread started, I think Stinky is correct. In PA, the cap is $100K for a MYGA, not $300K.

But, regardless of whether it is $100K or $300K, is it per insurance company or per individual?
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Re: MYGA: State Insurance Coverage

Post by Stinky »

Van wrote: Tue Sep 22, 2020 6:57 pm But, regardless of whether it is $100K or $300K, is it per insurance company or per individual?
I’ll give you my best guess. Let’s assume for this purpose that the MYGA coverage limit is $100k

Let’s say that you bought a $150k MYGA from Company A, which subsequently went into receivership. You would be assured of getting $100k back from the PA guaranty fund.

The remaining $50k would be an unsecured claim against the insolvent company. You might get your whole $50k back; you might get nothing back. If the Company A receivership proceeds like most receiverships do, policyholders are made whole. But that’s not a guarantee by any stretch of the imagination.

Then, let’s say that you bought three $50k MYGAs from Company B, which followed Company A into receivership a few months later. I believe that you would get the same deal - $100k recovery assured, $50k more on the come.

The guaranty association sets up separate “cells” for each company in receivership. And I believe (but am not dead certain) that the $100k limit applies to each separate receivership. So, in your unfortunate situation, you would be assured of $200k - $100k from each company. That’s what you want to confirm with the PA guaranty fund, when you hear back from them.

I’ll be interested to hear what PA says to you. Please post back when you can.
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Re: MYGA: State Insurance Coverage

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Stinky wrote: Tue Sep 22, 2020 7:16 pm Let’s say that you bought a $150k MYGA from Company A, which subsequently went into receivership. You would be assured of getting $100k back from the PA guaranty fund.

The remaining $50k would be an unsecured claim against the insolvent company. You might get your whole $50k back; you might get nothing back. If the Company A receivership proceeds like most receiverships do, policyholders are made whole. But that’s not a guarantee by any stretch of the imagination.

Then, let’s say that you bought three $50k MYGAs from Company B, which followed Company A into receivership a few months later. I believe that you would get the same deal - $100k recovery assured, $50k more on the come.

The guaranty association sets up separate “cells” for each company in receivership. And I believe (but am not dead certain) that the $100k limit applies to each separate receivership. So, in your unfortunate situation, you would be assured of $200k - $100k from each company. That’s what you want to confirm with the PA guaranty fund, when you hear back from them.
If we assume that PA treats MYGAs as "deferred" I think this is right ($100k limit for each combination of individual and insurance company) up to the lifetime aggregate limit of $300k per person.

The PA Statutes don't actually use the same language as the website linked above (i.e. the words "deferred status" don't appear in Pennsylvania Statutes Title 40 P.S. Insurance § 991.1703. Coverage and limitations). Instead they say this:
(c) (1) The benefits for which the association may become liable shall in no event exceed the lesser of: ..... Three hundred thousand ($300,000) dollars in annuity benefits, including one hundred thousand ($100,000) dollars in net cash surrender and net cash withdrawal values.
For a MYGA, the net cash value is going to be the purchase amount of the annuity so I agree with Stinky's interpretation that the per policy MYGA coverage limit in PA is $100k.
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Re: MYGA: State Insurance Coverage

Post by Van »

Vineviz,

Thanks for your interest and contributions on this topic.

You indicate that PA has a lifetime aggregate limit of $300K for an individual. Can you provide the reference, i.e. the language, for this? This is a game changer from my standpoint, as I would have more than that at risk.

Thanks again. Van
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Re: MYGA: State Insurance Coverage

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Van wrote: Tue Sep 22, 2020 9:12 pm Vineviz,

Thanks for your interest and contributions on this topic.

You indicate that PA has a lifetime aggregate limit of $300K for an individual. Can you provide the reference, i.e. the language, for this? This is a game changer from my standpoint, as I would have more than that at risk.

Thanks again. Van
The FAQ on https://www.palifega.org includes the following sentences right after the bit you quoted earlier:
"Under no circumstances can the statutory obligation of the Guaranty Association exceed the contractual obligation of the insolvent insurer. There is an overall lifetime maximum per individual of $300,000.
And in the PA Statutes that I referenced earlier it says:
(2) The association shall not, however, be liable to expend more than three hundred thousand ($300,000) dollars in the aggregate with respect to any one individual under subparagraph (ii)(A) and (B) of paragraph (1).
Notably, (ii)(A) and (B) include life insurance, health insurance, annuities, AND long-term care insurance as well as employer-sponsored retirement plans like 401(k), 403(b), and 457 plans under the same lifetime.

However, the chances of anyone hitting that lifetime cap are very small unless they happened to have a single large policy with an insurer who defaulted.
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Re: MYGA: State Insurance Coverage

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Van wrote: Tue Sep 22, 2020 9:12 pm Vineviz,

Thanks for your interest and contributions on this topic.

You indicate that PA has a lifetime aggregate limit of $300K for an individual. Can you provide the reference, i.e. the language, for this? This is a game changer from my standpoint, as I would have more than that at risk.

Thanks again. Van
From the link a few posts above, see last sentence in item 7:

https://www.palifega.org/FAQ

But I wasn't 100% sure if that was really "in TOTAL per person, including multiple insurers".
(But I also don't live in PA...)

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Re: MYGA: State Insurance Coverage

Post by Stinky »

vineviz wrote: Tue Sep 22, 2020 9:48 pm
The FAQ on https://www.palifega.org includes the following sentences right after the bit you quoted earlier:
"Under no circumstances can the statutory obligation of the Guaranty Association exceed the contractual obligation of the insolvent insurer. There is an overall lifetime maximum per individual of $300,000.
And in the PA Statutes that I referenced earlier it says:
(2) The association shall not, however, be liable to expend more than three hundred thousand ($300,000) dollars in the aggregate with respect to any one individual under subparagraph (ii)(A) and (B) of paragraph (1).
Notably, (ii)(A) and (B) include life insurance, health insurance, annuities, AND long-term care insurance as well as employer-sponsored retirement plans like 401(k), 403(b), and 457 plans under the same lifetime.

However, the chances of anyone hitting that lifetime cap are very small unless they happened to have a single large policy with an insurer who defaulted.
I agree that the language that you cite above is troubling. It seems to say that there is an overall lifetime limit per insured of $300k.

However, there is other language on the PA website that suggests a more liberal interpretation. If you look at the website under the "Additional Info" heading at the top of the page, you'll see a document entitled "3. Pennsylvania Life and Health Insurance Guaranty Association Act Summary". Here's some text copied from page 3 of that document:

"Limits On Amount of Coverage. The act also limits the amount the Association is obligated to pay out. The Association cannot pay more than what the insurance company would owe under a policy or contract. Also, for any one insured life, the Association will pay a maximum of $300,000 – no matter how many policies and contracts there were with the same company, even if they provided different types of coverages."

Note the reference in the copied text to "the insurance company", and no reference to an overall lifetime limitation across multiple companies.

OP, Boglehead Nation is relying on you to get in touch with the PA Guaranty Fund to let us know what the facts are. We breathlessly await your response. :D

(Also, it would be a lot better if Bogleheads were in charge of this part of the PA Guaranty Fund website. There are a lot of folks on this Board that could draft language that is less confusing than what's on the website now.)
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Re: MYGA: State Insurance Coverage

Post by Van »

Thanks Stinky.

I have sent 3 emails so far with no response. As you have suggested, if I don't receive a reply soon (today), I will call and see if that works.

I agree that the language is confusing and seemingly contradictory and that most Bogleheads could to better!
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Re: MYGA: State Insurance Coverage

Post by Van »

I finally got a response from the PA Life & Health Guaranty Association.

"$100,000 per person, per company, with a lifetime maximum of $300,000."

So to be ultra cautious, I interpret the above as meaning you could have $300,000 outstanding at any time, providing you had never received any benefit in the past due to an insurer becoming insolvent.
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Re: MYGA: State Insurance Coverage

Post by Stinky »

Van wrote: Wed Sep 23, 2020 1:16 pm I finally got a response from the PA Life & Health Guaranty Association.

"$100,000 per person, per company, with a lifetime maximum of $300,000."

So to be ultra cautious, I interpret the above as meaning you could have $300,000 outstanding at any time, providing you had never received any benefit in the past due to an insurer becoming insolvent.
I think that your interpretation is correct.

Highly unfortunate that there’s an additional lifetime maximum. And that the “per company” limit is lower than those in many states.
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Re: MYGA: State Insurance Coverage

Post by illumination »

I don't want to thread jack here, but if there are state guarantees, why are people so obsessed with the letter grade of the insurance company?
Like I will see people take less interest for an "A" rated company versus a B-.

If you are under the state limits (so you'll be made whole, and it's unlikely anyway) isn't this almost throwing money away?
I understand a state can't also cannot pay all bills (I think this is a separate fund?) but it almost seems like it's a no-brainer to take the higher rate.
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Re: MYGA: State Insurance Coverage

Post by Van »

illumination wrote: Wed Sep 23, 2020 2:42 pm I don't want to thread jack here, but if there are state guarantees, why are people so obsessed with the letter grade of the insurance company?
Like I will see people take less interest for an "A" rated company versus a B-.

If you are under the state limits (so you'll be made whole, and it's unlikely anyway) isn't this almost throwing money away?
I understand a state can't also cannot pay all bills (I think this is a separate fund?) but it almost seems like it's a no-brainer to take the higher rate.
Good question. That is partly why I was so obsessed in getting an answer about the extent of coverage for my state. Whatever state one lives in, if you choose to go beyond their limits of coverage, then you better be pretty careful about what company you deal with.
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Re: MYGA: State Insurance Coverage

Post by Stinky »

illumination wrote: Wed Sep 23, 2020 2:42 pm I don't want to thread jack here, but if there are state guarantees, why are people so obsessed with the letter grade of the insurance company?
Like I will see people take less interest for an "A" rated company versus a B-.

If you are under the state limits (so you'll be made whole, and it's unlikely anyway) isn't this almost throwing money away?
I understand a state can't also cannot pay all bills (I think this is a separate fund?) but it almost seems like it's a no-brainer to take the higher rate.
You make a good point.

The guaranty fund does not have a state "guarantee", and it's not a state agency (at least in my state). However, the fund has broad powers to levy assessments on all licensed insurers in a state to make up for shortfalls in any insolvent companies. So even though there aren't many life insurance companies that are domiciled in my state (Alabama), the Alabama Guaranty fund can levy assessments on all of the hundreds of companies licensed to do business here, including all of the big names. Guaranty funds in other states work the same way.

If your company does go insolvent, there can be temporary delays in payment, and temporary disruptions in policyholder service. However, you'll get your money up to the limits of the guaranty fund, and there's a good chance you'll get all of your money back.

Beyond just the interest rate, a lot of the companies with lower ratings also have pretty restrictive withdrawal and death benefit provisions. I really like the Blueprint Income website, because they give detailed information on every product that they sell. Some of the lower-rated companies with higher interest rates don't waive surrender charges (or market value adjustments) at time of death. Some of them don't allow for any withdrawals at all, even for RMDs. On other hand, most of the higher-rated companies pay out the full accumulated value at death, and allow for annual withdrawal of either interest earned or 10% of account value.

That being said, I've bought MYGAs from both companies in "A" range and those with ratings of B++. I even held my nose and bought a 2-year MYGA from a B+ company, given the guaranty fund protection.
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rich126
Posts: 2131
Joined: Thu Mar 01, 2018 4:56 pm

Re: MYGA: State Insurance Coverage

Post by rich126 »

Not to derail things but the last few months have caused a lot more interest in MYGAs due to rapidly falling interest rates.

Don't know if that will cause any issues down the road but clearly people are looking in new places to gain income.
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