Episode Transcript
Speaker 1 00:00:05 This is Annuity Straight Talk. Since 2008, your host Brian Anderson, has helped clients nationwide navigate the complex market for annuities With Brian's assistance, hundreds of clients have achieved a profitable and secure retirement. I would know because Brian has answered many of my questions concerning annuities and retirement planning so that you can benefit as well. Let's get started. Here's Brian.
Speaker 2 00:00:48 Hello and welcome everyone to the Annuity Straight Talk podcast episode number 59. My name is Brian Anderson coming to you for the 60th time. We did have an episode zero. We've had several guests in the past. About a year ago I kind of took this over, spearheaded it on my own. We've got Asho, Ramji helped me start it. He's coming to visit me tomorrow. Heck of a good guy, John Bomber's been a favorite of a lot of people for interpreting what's going on in the market. And on this one, however, it's just me, I'm sorry. So hopefully I can be entertaining enough for everyone out there. Beautiful fall day. Uh, I got wrapped up on the phone, so it's getting a little later in the evening. Hopefully I've got enough light to get this done. Again, this is not a professional recording studio. I do what I can.
Speaker 2 00:01:28 We'll try to improve it in certain places, but the goal is to keep the content flowing and make sure everybody has some education, get some education, get some questions answered, and if it's entertaining, I think that's a benefit as well. So today I wanna talk about the state insurance guarantee funds. I've done a podcast on what happens if an insurance company fails. I've written newsletters about it, I've talked about it. And the point of this, again, the newsletter and the podcast was a way to really, to engage with people without being, without pressuring them. Now a lot of you that have called me or set appointments, you know, clients and all that stuff, well clients are a bit different because we've worked through all that stuff, gotten to know each other really well. But for new people that come in, it's always, you know, they're always nervous cuz I think a lot of the other places online that offer information or offer to hook you up with an agent that'll help you with your retirement plan, all that stuff, they can be pretty aggressive.
Speaker 2 00:02:25 And so I don't make a ton of outbound phone calls and uh, several years ago I realized that it would be, you know, a nice way instead of me calling you all the time, emailing you, send you information, things that are helpful, entertaining stories about me so you can get to know me and all that stuff. And that was, I thought that was far superior to endless phone calls and emails. Hey, what are you doing if you made a decision, do this, do that. I like to think that, well I, I know that my clients are all really smart people. They recognize the value in that and they decided to do business for themselves. I did not have to pressure or push anyone. Timing's one of those places where you can say, Oh, now's a really good time and all that stuff. But again, I'm really looking for quality relationships, quality business people that wanna do the right thing for the right reasons.
Speaker 2 00:03:10 And I'm not looking at just numbers. So, and I realize with the way this is going, it might turn into a bunch of numbers, but I'm not at all ready to handle that. What I want is a really high quality experience for everyone involved. So I've, I've done, I've covered this topic a lot and the reason I'm bringing it back again is, is because there's a good recent example of where this fits. We talk about state guarantee funds and everybody asks about it. You know, annuities are supposed to be safe. And I'm gonna say first and foremost, I learned this nearly 20 years ago when I took my insurance test to get my insurance license. We are not allowed to use the presence of, or the existence of a state guarantee fund in our sales pitch as an inducement or a reason to buy an insurance contract of any kind.
Speaker 2 00:03:57 I don't. And but I noticed that a lot because I've heard people come in, Oh this guy said it's guaranteed and I was worried about the insurance companies, but he said not to worry about it because there's state insurance and I can't say that. And, and if you've read the stuff I've done in the past, I've explained to people why it probably doesn't even matter. I do not use it as a way to sell products. I'd prefer not talk about it. But it's funny, there's a lot of agents that also see, hey, we're not supposed to talk about that. Does that mean we're not supposed to answer questions? I mean if you call and if you come and ask me about the state guarantee association, oh I don't know anything about that. No, we're just not supposed to use that as part of the reason and the pitch to buy an annuity or an insurance product of some sort.
Speaker 2 00:04:40 So there's a difference and I think it's within my rights to talk about it and it's within your rights to ask the questions. And so this is kind of, I mean that's essentially where we're at. And I found, I got the question again and I don't mean to just pass anybody off, but when I've done two or three newsletters on it and a podcast, the information is there and it's, I mean, I mean what would you do if you were me? Do you wanna write that all out again in an email? It's easier to have a conversation on the phone and talk about it, but part of this is compressing my time. There are a lot of people that I work with, There are a lot of people that have questions, won't do business. There are a lot of people that use me for information.
Speaker 2 00:05:23 So I have to leverage my time a little bit. And that's what this is for. I am going to share my screen, why not? And I'm gonna show you if you sing first and foremost is back on October 11th, 2019. What if an insurance company goes bankrupt? So I did that one and I'm not gonna cover all the stuff that I covered in there. You know, insurance companies operate very differently in a bank. They are insured themselves, they're on a one-to-one asset to liability ratio. They have reserves on top of that, but they're very stable. Banks are very highly leveraged. They need insurance. There's a little bit of buzz about some banks being overextended right now. So when a bank's over extended, when they have far more liabilities than assets, then only a small part of those liabilities have to go bad in order to wipe out all of their assets.
Speaker 2 00:06:08 That's what happened in 2008. But it's there. Go to the webpage and look it up. Just type in the search box bankrupt or something like that. That one will pop up and you can read it. And then I did a podcast about it probably last year sometime. And so recent events like talk about current events are things that are timely. When I get this question right now, it illustrates a really good point. What did we just have happen last week? We had a devastating hurricane in Florida. Okay? I work with a lot of people in Florida, I know a lot of people in Florida, I have family there. I hope everyone is okay so far. Everyone I've talked to is fine, but not everybody got through it without losing something. And that's one thing where there's a big difference between what insurance companies will pay there versus what they may or may not ever pay on annuities.
Speaker 2 00:06:53 So I guess I'm getting a little bit ahead of myself here. What I did is I pulled this from one of the states that I do business in, that I'm licensed in has this as a publication about their state guarantee funds. No person including a member insurance, insurer agent or affiliate of a member insurer may make published, disseminate, circulate or placed before the public or cause directly or indirectly to be made, published, disseminated, circulated, or placed before the public in any newspaper, magazine or other publication or in the form of a notice circular pamphlet letter or poster or over any radio station or television station or in any other way, which probably includes podcasts, <laugh>, any advertisement announcement or statement written or oral, which it uses the existence of the insurance guarantee Association of this state for the purpose of sales solicitation or inducement to purchase any form of insurance or other coverage by the X State Life and Disability Insurance Guarantee Association Act.
Speaker 2 00:07:58 So essentially you cannot use it to market insurance products. It is not a benefit that I can state as annuities. And when I talked about it in the newsletter and the podcast in the past, I tell you why it doesn't really matter. Now I got the question via email from someone last week. This tells me that I can't advertise it and I'm not advertising and I'm gonna like, I think, I don't know, We got Executive Life New York. I mentioned it in the newsletters. It's been on the webpage. It took him 23 years. Okay? So where this comes in, the guy asked about, he's in Utah and he said, Let me help me understand more about the Utah State Insurance Guarantee Association. I can do that, I can help him understand it, I can explain what I know, I can point him in the direction of information that will help him, but I never, this was after he bought it.
Speaker 2 00:08:48 I never once said, so I'm not doing anything wrong. So here's a part of, so any state guarantee association works the same way because every insurance company operates in most states when insolvency occurs the state of domicile. So that where the company is headquartered, that state takes control of the company and all of the other states associations watch closely to see what, what happens. The state guarantee fund has its own assets paid for by premium tax on life insurance and annuity contracts. This keeps him completely separate from the so solvency of the state of the state itself. This gentleman was concerned that hey, the state, their budget's not all that healthy. So does that really offer me protection? It's separate from the state so it doesn't even make a difference. Again, and this is no reason at all why you should buy an annuity or other insurance contract simply because of that benefit.
Speaker 2 00:09:43 So the company he purchased from was Midland. You guys know that I like Midland. If Midland fails, the insurance commissioner in Iowa will take control. But Utah, this is the, his home state, Utah will not be involved until everything has been liquidated and zero assets remain to cover the liabilities. There are very few cases where guarantee associations have been used to cover losses in annuities. Insurance companies are not leveraged like banks. So failure is much less likely. And there are about a couple examples of how it works compared to the hundreds and hundreds of examples with banks. Fixed annuities are spread products. So assets and liabilities are matched one to one and the insurance companies simply profits from the difference between interest earned and interest paid. Everybody thinks insurance insurance companies make a lot of money because they do a lot of volume, they don't make a lot of money off of you.
Speaker 2 00:10:38 They make a little bit off of you and a little bit off your neighbor and a little bit off of that guy. And it all adds up to a a tidy sum. They're very consistently profitable businesses. But anyway, I guess that's kind of off on a tangent. So this is why true failures with consumers losing money are more or less non-existent, more or less. I'm not saying there isn't one, there's not one that I've ever heard of. If a lot of people call and say, Oh this company they got locked up and Colorado Banker's Life, I've talked about that, I'm not gonna do it anymore. I didn't sell it. You're fool if you bought it. I covered the topic of the podcast last year newsletter in 2019. It's simple and straightforward if you wanna learn more, I'm trying to be lazy, but I wrote and recorded both so I can be efficient with frequently asked questions.
Speaker 2 00:11:19 So the existence of the state guarantee fund cannot be used to solicit business with annuity products. I do not do that because I think your focus should be on the structure of annuities and why they are as safe as they are. They are safer than anything else you can participate in financially, period. And if you're worried about that, you gotta dig into some of the assets you currently hold. I guess in the newsletter, my favorite line was that New York Life has more in reserves than the entire F D I C one company has more in reserves than the entire insurance system that's set up to back the banking industry. Pretty interesting. So the F D I C is not even really insurance, it's just <laugh>. It's a, it's a license for them to leverage tax on the American citizens to pay for bank failures. Meanwhile, the bankers make a ton of money.
Speaker 2 00:12:09 I can't believe so many people have money in banks and are happy about it and they realize how much money a bank makes off of your money. You know, put a thousand bucks into a bank and they loan out 10,000 on that. They pay you 2% on a thousand bucks and they make 6% on 10,000, that's $600 a year. That's a 60% return on the money that you put in Holy cow and PE and people trust banks and the all those insurance companies are out to screw you. Are you kidding me? <laugh>, come on, wake up everybody. So then if, if that's not the case. Now I'm not saying there isn't some protection in there, but I'm just the way like again, executive life in New York took 23 years to get there. In the meantime, people were paid their income payments, they were liquidated from their accounts and all that stuff and Colorado Banker's Life because it was a fraud situation.
Speaker 2 00:13:04 They're so sorting everything out and it's been four years probably the insurance guarantee associations aren't even involved yet. So it's not at all like the F D I C, that's why you have to pay attention to having good solid companies, good strong reserves, good products, good customer service, all the things that tell you that that is a quality business that deserves to be the custodian of some of your retirement funds. Now it's interesting, like I said, Florida, really good example, and I've touched this, this is just kind of like a timely development for me. And again, I, and I've told you guys a lot in the past where I, you know, sometimes the day I record something is when I get the idea and I just turn the camera on and go for it. Several people I talked to in Florida, everybody I've talked to so far is okay, talked to one guy, we have not done business.
Speaker 2 00:13:52 We may one day, nice guy, it's a couple from Ohio and they have a little condo in Florida they go to and the great people, I really like him, saw 'em when I was visiting Florida a couple years ago. Where is it? <laugh>. So his condo south of Tampa. Boom. So I thought that was really cool and I, he sent it to me and I thought, I said, Hey can I use that on the website? And that's what gave me the idea. So it was a few days ago I talked to him and it's a little blurry cuz I blew it up so you can see it, you can see his boat is completely off the lift and he to, he told me that he takes the drain plug out of it because when they're gone for several months it rains a lot and it's on a lift that's off the water.
Speaker 2 00:14:29 And so, you know, he doesn't come back after a few months and have the boat full of water. Uh, it rains a lot in Florida, right? But the water level got up high enough, the storm surge got up high enough that it lifted his boat off of the lift, right? And placed it on the pylons. It looks like the walkway on the deck. Maybe that's the dock, the neighbor's dock. But he, he said, Hey, how do you like my flying boat? I'm like man, what? Like that's lucky. Now he's gonna have to get a crane in there to get it off and stuff and he might have some scuff marks and maybe scratch or a small dent, but it's a nice enough boat. Probably 20 or 30,000 bucks. I don't know what those things cost but you know, boat's not cheap. Well that was kind of a cool photo to talk about what's going on in Florida and thoughts and prayers go out to everybody down there who would be affected by it.
Speaker 2 00:15:16 I know some places were not affected at all. I've got family in North central Florida so they got a little bit of rain and some mild winds. Uh, didn't get much and, and I know there's obviously a lot of devastation, but to talk about this is the reason I bring this up and why that spurred the idea is because that is what insurance guarantee funds are for. They are for catastrophic losses. If an insurance company sells some bonds at a loss that back your annuity and they have to take a little hit from to their asset base or whatever, that's not a catastrophic loss and that's what's an insurance is for. I've always had a problem with people and you know, health insurance, health insurance is not, healthcare just isn't insurance against catastrophic loss car insurance. If you wreck your car, you get a check from the insurance company.
Speaker 2 00:16:03 So when we talk about the state guarantee funds, it's most applicable to catastrophic events like Hurricane Ian that just went through Florida. I looked it up before I started this and it, it said that insurance losses from Hurricane Ian are estimated to be between 20 and 40 billion. That is a catastrophic change to insurance companies. Now they're set up where they've got reinsurance and I'm, I've not seen any indication that insurance company is going to fail from that Hurricane Katrina in 2005, Hurricane Harvey and Houston three or four or five years ago. Those are the times when they're catastrophic losses where an insurance company might need a little bit of help. Maybe they go under because they have far too many liabilities. And so we're talking about property and casualty insurance, which is where the majority of claims would probably be made if it exists. Now I'm not a a specialist in that area, I can't tell you how they do it, but again, you are protected by the insurance company, okay?
Speaker 2 00:17:02 The state guarantee fund protects the insurance company. So you get your protection from the company. The company gets a little bit of protection from the state in addition to everything else that they do to put it together. So you should not be focused on the guarantee fund for protection from your contract because the company is set up to handle it and before they ever get to that, if they do, then you're gonna be long gone with all your money done. Insurance guarantee funds are basically for catastrophic events. Hurricanes, forest fires like Northern California four years ago, five years ago where they had entire cities just burned from the forest fire, things like that. And I think some little companies definitely went outta business for that. So it's okay to ask the questions. It's okay to understand and I will continually tell you why. It does not matter if someone tells you to buy an annuity because of a state guarantee fund.
Speaker 2 00:17:54 They are not acting appropriately or legally they're not allowed to say it. It doesn't mean we can't talk about it and explain how it works. And if you do the right business with the right companies, it's completely irrelevant. So I wanted to tell you that, show you a picture of one person I know in Florida, good thing they're okay. But again, just a little bit more information about state guarantee funds. Next time somebody asks, I can point to this. I'll probably write a newsletter that goes along with it. But it's coming out this weekend and I appreciate you hearing me out and joining me for a little bit more information, a deeper explanation of what they mean. We're not allowed to use it. So I don't, but I didn't just stop there. I also dug into why it doesn't make a difference and why it is not something you should rely on.
Speaker 2 00:18:41 You have to look at the company first and work with someone who knows what the heck they're doing so you don't have to worry about that. Anyway, this has been episode 59. Do you wanna talk to me? You can gimme a call. Eight hundred four thirty eight five one two one. Schedule a call top right corner of any page on annuity straight talk.com. My name is Brian Anderson. It has been a pleasure having you with me for this discussion. I will be back next week with episode number 60. Not sure what it is, but I got a couple ideas I think you'll like. So anyway, thank you again for stopping by. I will see you guys next week. Okay, bye.
Speaker 1 00:19:25 Listen to an talk. The proceeding information is for information and educational purposes only. It does not represent tax, legal, or investment advice. The views expressed by guests on this program and do not necessarily reflect the views. No information presented should be acted with. Its important that all insurance contracts, financial paying insurance company.
