Here's a question most people don't think to ask: "How do I know the insurance company behind my annuity is actually solid?"
It's a great question. Because when you put money into an annuity, you're entering a long-term contract. You want to make sure the company on the other side of that contract can follow through — not just now, but 20 or 30 years from now.
The good news: insurance companies are among the most heavily regulated financial institutions in the country. State insurance departments monitor their reserves, capital requirements, and business practices. But not all companies are the same. Here's what to look at.
1. Financial strength ratings
Independent agencies like A.M. Best, Moody's, S&P, and Fitch rate insurance companies on their ability to pay claims. An "A" or better from A.M. Best is generally considered strong. But ratings can vary by agency, so it's worth checking more than one.
2. Years in business
Some of the strongest carriers have been around for 100+ years. Longevity isn't everything, but a company that's been paying claims through the Great Depression, the 2008 financial crisis, and everything in between has proven something.
3. Total assets under management
Larger companies typically have more diversified portfolios and stronger reserves. This doesn't mean small companies are bad — but scale matters when you're making decades-long promises.
4. Surplus and reserve ratios
This is the money the company holds above and beyond what they need to pay current obligations. Think of it as a safety cushion. State regulators require minimum surplus levels, but the best companies exceed those requirements significantly.
5. Claims-paying history
Has the company ever missed a payment? Ever been placed under regulatory supervision? This information is public and available through your state's insurance department.
One more thing worth knowing
Every state has a guaranty association that provides a safety net if an insurance company becomes insolvent. Coverage limits vary by state (typically $100,000 to $500,000), similar in concept to how FDIC covers bank accounts.
You don't need to become an expert on all of this. But you should feel comfortable asking your advisor: "Which company is behind this product, and why did you choose them?" A good advisor welcomes that question.
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Author of Indexed Annuity Secrets and founder of Pacific Ridgeway Insurance Solutions in San Diego. Navy veteran. Licensed financial professional, CA #4132743.
Fixed indexed annuities are insurance products, not investments. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. This article is for educational purposes only and is not financial, investment, tax, or insurance advice.