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The answer is an absolute yes, but many people want to know why.  Investors do deserve objective analysis and concrete facts that go beyond the assurances of a salesman.  The lack of honest analysis is the reason many people distrust the financial industry.

Annuities differ from bank deposits because of the FDIC insurance that banks carry.  Many people see that simply as a government guarantee against loss, which it is.  But what does the presence of the FDIC say about the institutions that it insures?

The FDIC puts all banks on a level playing field when it comes to blanket coverage of assets on deposits.  That doesn’t mean that all institutions are equal.  Some are weaker than others, some are in serious trouble and some are extremely stable.  The FDIC allows for the perception of safety regardless of the financial health of the institution taking the deposit.

It’s a simple fact that some banks need the insurance and some don’t.  Adequate reserves and superior risk management policies eliminate the need for loss insurance.  Lately there has been a growing number of banks that took serious risks and the assurances provided by the FDIC.  As a result, the FDIC is facing insolvency within the year.

How are insurance companies different?  The insurance industry doesn’t have the FDIC safety net and is fully responsible for the guarantees offered.  This requires an insurance company to incorporate a very conservative asset management strategy.  Therefore, the most stable insurance companies hold many times the level of reserves required.

In addition, assets within an insurer’s general account are backed by a guaranty fund in each state.  In most states the coverage amount equals the $100,000 that the FDIC provides. 

Annuities gain safety from the financial stability of the issuing company.  A variable annuity holds securities in the account so the owner of such a contract has an ownership claim to the funds.  Fixed annuities are held in a company’s general account.  In the case of company insolvency, the general account assets would be first released to policy owners in accordance with the guarantees in the contract.

There are certainly a few cases where state regulators took control of an insurance company and investors’ money was locked up for extended periods of time.  That definitely represents a unique set of circumstances, and merely highlights the importance of making prudent decisions when selecting products and companies.

It doesn’t take long to find current news pointing to trouble in the insurance industry.  Money invested with those companies is still safe but if you’re not convinced, then disregard those organizations and keep looking.  Look into the major Mutual Insurance sector as the place for unmatched safety and a superior track record.  These companies have been around forever and exemplify conservative profitability..

When it comes to comparing banks to insurance companies, the analysis is simple.  Just think of an insurance company as a consistently profitable and solvent bank.  Annuities are safe.  And that’s a Guarantee from the most stable, consistent companies in the financial industry.