It has been a couple of weeks since insurance giant American International Group (AIG) was bailed out to the tune of $85 billion. If you are an AIG policyholder, chances are you still have questions/concerns about the company’s solvency, your policies, premiums etc.
Q: On the minds of AIG policyholders as well as insurance consumers in
general is what exactly does AIG’s $85 billion bailout mean?
A: In short, it means the government has control.
Q: What would have happened if the bailout had not occurred?
A: If AIG had not been bailed out, the company would have collapsed.
The ramifications would have not been limited to the United States. The
ramifications would have been worldwide. AIG does business in 130
Q: I have a life and/or health insurance policy or an annuity with AIG,
should I be concerned?
A: Please note that AIG has not filed for bankruptcy and they have not been
Q: What will happen if AIG files for bankruptcy or they are deemed insolvent?
A: The insurance industry has protection mechanisms in place in the event an
insurance company files bankruptcy/becomes insolvent. This protection
mechanism is similar to FDIC for bank deposits.
Q: What exactly is the protection mechanism that the insurance industry has
A: Companies that write life, health and annuities are members of their State
Guaranty Association. The purpose of the Association is to protect the
policyholder in the event that a member (insurance company) becomes
insolvent (unable to meet financial obligations including pay claims) Each
state has a guaranty association. These associations are commonly referred
to as the Life and Health Guaranty Association.
Q: O.K. that’s fine for life, health and annuities, but I have a homeowner’s
or auto policy with AIG.
A: Each state has established a Property and Casualty (P&C) Guaranty
Association. The P&C Association essentially provides the same type of
protection that the Life and Health Guaranty Association provides.
Q: How does the process work if a company becomes insolvent?
A: Basically, the association assesses its other member insurance company’s
for the money to pay the claims of insured persons living in that
Q: Will the association pay the full amount of my cash value?
A: The level of coverage may vary by state, but every state association
provides withdrawal and cash value coverage for annuities and life
insurance of at least $100,000. There are some states that offer up to
$300,000 and fewer offer up to $500,000.
Q: I think I have heard of this concept, is it the same thing as reinsurance?
A: No, reinsurance is when one insurance company indemnifies (backs) another
Q: Is AIG going bankrupt?
A: AIG is financially solvent. Their assets are carefully monitored by the
Q: Is it a good idea to take the cash I have in my life insurance and/or
annuity and use it to buy the same type of policy with another company?
A: Deciding to surrender your life insurance and/or annuity is and should
always be a personal decision. If you decide to surrender your policies
be aware that certain policies may contain surrender charges. Before
finalizing your decision be sure to discuss the matter with your agent or
Q: Should I still pay my AIG insurance premium?
A: In order for there to not be a gap in coverage if is imperative that you
pay your policy premium. Not paying your premium could result in the
termination of your policy.
Always review your policies once a year. If you have life changes notify your agent/broker/financial advisor to determine what impact those changes may have on your insurance policies. Life changes include: marriage, divorce, birth of a child, death of family member, new job, house or car, business venture.