What if insurance co. goes bankrupt?

[Guest defcompq]

All right maybe I'm paranoid., or at least really REALLY cautious.

My employer offers only one 457 plan and that is through Hartford insurance. What if, many years from now when I'm ready to withdraw my 457 contributions, there are 10 major hurricanes somewhere in the U.S. and Hartford goes broke paying all those claims. Is my insurer insured?

In other words, if for example I had my money in a bank account and the bank went out of business, my account would still be FDIC insured, so I would not lose everything. Is there some analogous insurance that I could fall back on to recover my 457 money in the event that Hartford went bankrupt (not that that seems very likely presently)?

One more question and this one's very vague and open-ended: Suppose I do not take advantage of my 457 plan. Yes I know I would miss out on substantial tax savings. But just suppose hypothetically, for some crazy reason of my own, I decided not to participate in the 457 plan. And assume for the sake of argument that I do put the maximum each year in an IRA, so that's not at issue here. How should I invest the money that I would have put in the 457? My only idea would be to regularly buy some kind of federal or municipal bonds in order to get at least some tax advantage.

Thanks for any information or suggestions.

[mbozek]

Under state ins laws, Life ins. companies are separate corporations from Property/ Casualty cos companies to prevent the type of risk you are worried about. State ins. laws also provide for a guaranty fund for policy holders whose Life insurer becomes insolvent.

[Guest defcompq]

Thank you, that is helpful!

I'm now looking into confirming whether New York's "Life Insurance Company Guaranty Corporation...Act" protects 457 plan members.

[No Name]

Do some research on Executive Life and Mutual Benefit Life Ins. Co.

[Kirk Maldonado]

Having been in California when Executive Life crumbled, I can tell you that things didn't turn out as rosy as you might expect from mbozek's comment about guaranty funds.

[mbozek]

I never promised a rose garden on guarantee funds because they depend as I said on each state guarantee law and regulation. I merely mentioned that they are available in the event of insurer insolvency. From what I know Exec Life Cal policy holders eventually received 75-80% of their investment. Exec LIfe NY policy holders got more (90%) because NY would not allow junk bonds in the Co. portfolio and pulled the plug earlier. Mutual Benefit investors had their annuity investments frozen when the Co became insolvent. They were paid about 5% for 5-7 years until the workout ended and the Co restored to solvency. In some cases the state will force a takeover of an insolvent insurer. When Equitable became insolvent NY state changed the ins law to permit Equitable to change from a mutual insurer to a stock Co so that it could be acquired by AXA which invested $1B to provide solvency.

[Guest rubindj]

If the product is variable contract (VUL, VA, VL) then any amount that is invested in investment pools (the mutual fund part) is protected by the SPIC, the same ppl that protect stock brokers and the like. Any amount in the General Contract will not be protected.

As for taxable investments, unless you need the income I would avoid bonds. I would go with a very low turnover (probably index fund) stock fund. Remember LT cap gains is only 15%, and its deferred until you sell.

You could also go with Exchange Traded Funds which will have no taxes except for dividends until you sell them, then its just 15% (LT Cap Gains).

[Guest defcompq]

Thanks to all for your helpful responses! By the way, I have been informed that New York's "Life Insurance Company Guaranty Corporation...Act" generally does NOT protect 457 plan members.