Top Rated Annuity Companies
As annuities continue their resurgence to the top of investor preferred vehicles for safe, secure, long term savings, the spotlight once again returns to the top rated annuity companies. As their popularity increases, so too does the proliferation of annuity products on the market which, at best, broadens the choices that investors have, and, at worst, adds to the overwhelming confusion. With dozens of companies offering hundreds of annuity products in a variety of colors, the task of selecting the right annuity can be extremely daunting if not totally discouraging. It doesn’t have to be that way. By limiting your search to the top rated annuity companies you will significantly reduce the expense of time, resources, and second guessing.
Why Financial Strength is Important
Fixed annuities have long been considered to among the safest of investments. Their safety is rooted in their structure as well as the strength of the life insurance companies that back them. Structurally, they are a contract between you and a life insurer in which your deposit becomes a legal obligation of the insurer. Depending on the contract, the life insurer becomes obligated to protect your principal while paying you a guaranteed rate of interest for the term of the contract.
Your deposited funds are then invested in the general account of the life insurer, so they are both an asset of the company as well as an obligation. Unlike banks, that loan out as much 98% of their customers’ deposits, life insurers are required to keep as much 98% of their deposits in reserve. Depending on the state’s regulatory requirements, life insurers are also required to maintain capital surpluses. In addition, most states have a guarantee fund that protects policyholder benefits up to $500,000 (the amount varies from state to state). Putting it all together, an annuity contract owner is more likely to be bitten by a shark than lose a dime of his principal.
Still, there are degrees of safety. Even with all of the protections built into the structure of the annuity contract and its adherence to state reserve requirements, life insurance companies do vary in terms of their financial strength and stability. Some companies are better at managing their portfolios, and some companies ascribe to a more conservative approach, which can reduce their vulnerability when the economy turns sour. Companies with portfolios invested in lower quality bonds, or with weak balance sheets, can expose their policyholders to a higher degree of risk. Fortunately, you don’t have to be able to study investment portfolios or know how to read a balance sheet to know which companies might experience problems in the future. The independent rating agencies take that task on so you don’t have to.
Look to the Ratings Agencies
The rating agencies, such as A.M. Best, Standard & Poor’s, and Moody’s, audit, track, compile and publish the financial data of life insurers, and then, based on their assessment of their financial strength and long term stability, assign a rating that enable you to benchmark the quality companies and compare. Each has its own system of ratings criteria, but they all reserve their top ratings for the strongest companies. A.M. Best issues an A++ to the most financially sound companies of which only a few qualify. But it’s A+ rating is considered to be a top rating as well. Standard & Poor’s and Moody’s apply triple-A (AAA) rating to their most highly rated companies. In total there are about 25 companies that have earned the very top ratings of A+ or AAA. Companies with slightly lower ratings (i.e. an A from A.M. Best, or an AA from Moody’s) would also be considered to be financially sound. There are about 50 companies with ratings of A or better (A.M. Best), or AA or better (Moody’s).
Given the large number of life insurers deemed to be exceptionally strong by the rating agencies, there is little reason to look beyond them to the other 120 companies that offer annuities. You are not likely to find much more competitive rates, and, if you do, you would have to weigh the benefit of a slightly higher interest rate against the reduced peace-of-mind that comes with it.
Beyond financial strength, the other key aspect to look for in a top rated annuity company is their level of customer service. Annuities are not among the simplest of financial instruments to understand, and there are a lot of considerations and options that need to be weighed before and after their purchase. In order to maximize their benefits over the long term, they may require some proactive management. Most annuity investors aren’t able to do this on their own. They require the assistance of their provider. So, it is important that your provider have a robust and responsive customer service department. Owning an annuity from a highly rated life insurer may not be of much comfort if your customer service needs aren’t being met.
When you combine the financial quality elements with the customer service elements, the number of top rated companies might be reduced to just a couple of dozen. If you can assume that the top 20 or 30 companies offer solid and competitive annuity products, then your two most important criteria should come down to quality and service.
Financial quality ratings and levels of customer service are in a constant state of flux. If we listed the top rated companies in both categories here today, the lists will likely change next month, or when the next assessments are conducted. Your best bet is to search an annuity site with the most current data and sort by ratings. Then, conduct a quick review of the companies’ websites and consumer forums to see which companies offer the most robust customer service facilities.