Your insurance

Should I be concerned about my insurer’s ability to pay claims?

Insurance companies are regulated by the states. By law, they must have enough capital in reserve to pay their claims, according to the National Association of Insurance Commissioners (NAIC), the organization for state insurance regulators. Even if your policy is with American International Group, or AIG, which was bailed out by the government in September, you don’t need to worry. AIG’s subsidiaries that sell homeowners, auto, life, and other types of insurance are sound.

State regulators can also take over an insurer in trouble. Insurers are required to pay outstanding claims to policyholders before other creditors can step in, says Robert Hunter, insurance director at the Consumer Federation of America.

What to do

If your insurer is AIG, be wary of pitches to replace your policies with coverage from other companies. It’s unnecessary and potentially costly, says the New York State Insurance Department. If you’re dissatisfied with the service or cost of your auto, home, umbrella, and term-life policies, you have the option of moving to another company when your policy is up for renewal each year.

What about my annuities?

Fixed annuities are protected by the same regulations as regular insurance, the NAIC says. Returns from variable annuities, which combine life insurance with an investment component, will suffer along with the rest of the market.

What to do

If you have a variable annuity and want to bail, weigh the cost of paying the policy’s surrender charges against any losses you’ve suffered, Hunter says. If you bought the policy a few years ago, those charges could wipe out the premiums you’ve paid. Waiting longer would cause you to lose more if the market continues to decline, but your surrender charges would also shrink.