What does the collapse of AIG mean for life insurance policyholders?
The news of the financial collapse of the global insurer AIG was hard to ignore. Once the Federal Reserve provided an $85 billion loan package, AIG avoided bankruptcy in the short term. In exchange, AIG must pay a high interest rate on the loan (more than 11%), agree to remove its CEO, and provide guarantees equal to 80% of the property to the US federal government. The capital crisis and The liquidity AIG faced was the result of its exposure to bad mortgage debts from parent company AIG.
Implications for policyholders
You may have a life insurance policy from AIG or one of its subsidiaries (American General or US Life of NY). The capital and reserves of these companies are heavily regulated by state law. Each entity is responsible for its own liabilities. Thus, policyholders are less exposed to the financial turbulence of parent holding company AIG.
What do the experts say?
To ease policyholder anxiety, American General issued the statement: “American General Life is well capitalized to meet or exceed local regulatory capital requirements and fully committed to meeting the needs of its US policyholders.”
The National Association of Insurance Commissioners (NAIC) issued the following statement: “We have a very strong message for consumers: if you have a policy with an AIG insurance company, they are creditworthy and have the ability to pay claims.”
The New York State Insurance Commission made a similar reassuring statement on CNBC. Panicked policyholders dumping their life policies will only contribute to the erosion of AIG’s financial assets and revenues, exacerbating the problem.
worst case
But with front-page headlines and a deepening financial crisis, consumers are still unsure and anxious about their policies. What is the worst case? If AIG or any insurance company goes bankrupt, all states have life insurance guarantee funds. The state will, in effect, take over the company and assume responsibility for the liabilities, typically up to a $300,000 death benefit, depending on the state. Policyholders are first in line for any assets held by the insurance company. It is sought that the policy book be absorbed by one or a group of insurance companies.
That I have to do?
Consumers buy life insurance for peace of mind, and news of potential financial insolvency doesn’t bring much comfort. But before you make a rash decision, consider all your options and don’t panic. Some consumers want to cancel their coverage and replace it with another policy from a more stable insurance company. However, this may not be in your best interest, especially if your health has changed since you applied for your policy, is older, so the policy may cost more, and there is no guarantee that the company you are switching to will not have financial resources. own problems in the future.
In most cases, it makes sense to weather this storm. If you’re convinced you want to make a change or just need reassurance, talk to an insurance professional who represents many insurance companies and can help you put together an umbrella insurance plan. By reviewing your policy, you may decide that you need more or less insurance. The silver lining for many consumers is that they are now paying attention to their own insurance portfolio to make sure it meets their needs.