Your annuities are not FDIC insured. If the insurance company goes bankrupt, you would likely lose a large portion of your investment if your state doesn’t have laws protecting you. Annuities are investments and while their rate of return is guaranteed contractually, the fact is your annuity’s health is tied to the health of the insurance company that sold it to you. It works a lot like insurance, if the insurance company goes bankrupt, there’s are only guaranty associations behind them to pay out some of your claims.
What does this mean you? It means that in addition to reviewing the fees associated with your annuity, one of the biggest reasons why people warn against annuities, you have to review the financial health of the insurance company you’re buying it from.
What are guaranty associations? Guaranty associations are state-level organizations that protect you, somewhat, in the event the insurance company goes bankrupt. Every state provides at least $100,000 of coverage for annuities and some offer even higher limits (New York and Washington go as high as half a million dollars). While the insurance is nice, don’t let it lull you into a feeling of confidence. You still want to review the financial health of the company you’re dealing with.