CD-Type Annuities - High Level of Safety

CD-type annuities are backed by insurance companies as well as guarantee funds in many states. For the highest levels of security, I recommend that investors always choose CD-type annuities that are rated highly.

Safety Feature 1: State Oversight and Insurance
Your state’s insurance commission or board regulates and oversees the insurance companies doing business in your state. They require insurance companies to maintain reserves equal to the withdrawal value of your annuity. Furthermore, most states require additional levels of capital surplus to further increase investors’ security. In addition to oversight, each state protects its policyholders by providing a safety net often referred to as a “state guaranty association”. All 50 states plus the District of Columbia and Puerto Rico have insurance associations that would pay the claims of financially impaired companies. Your state law specifies what types of insurance and annuities are covered and the dollar amount of that coverage.

Safety Feature 2: Choose a Company with High Ratings
In addition to state oversight, there are several rating companies that evaluate the financial quality of each annuity company. The most widely recognized rating service is A.M. Best. I recommend that investors interested in having the highest level of safety in their portfolios use only companies rated in the top four ratings by A.M. Best: A++, A+, A, A-.