Variable annuities: Safer than you think

NEW YORK (Money Magazine) -- Q. I have a variable annuity with a large insurance company, and I'm worried whether the money is safe. Plus, I have a 10% loss. Since I have no withdrawal penalties, should I just liquidate it?

Walter Updegrave, senior editor, says ...

As far as safety goes, you can probably relax.

Despite a recent flurry of downgrades, most major insurers still have relatively high financial strength ratings. (Look up your company at ambest.com.) And funds in variable annuities are generally invested in mutual fund -- like subaccounts, which are beyond the reach of creditors and other claims. Plus, when an insurer fails, regulators transfer its annuities to a healthy one.

As a final backstop, state guaranty associations cover $100,000 or more in annuity values (go to nolhga.com for the limit in your state).

Of course, bailing is also an option, and you might even qualify for a tax-deductible loss. But before you do, check with an adviser to make sure you're not giving up lifetime withdrawals or other guarantees that could be valuable in the future. Better to sort out such issues before you sell than after.

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