Is Your AIG Insurance Policy Safe?

Is Your AIG Insurance Policy Safe?
Will the struggling insurer be able to meet its financial obligations? Here's what you need to know.
By BRETT ARENDS

People are in a panic about AIG. In the last 24 hours I have been swamped with emails from anxious readers around America who want to know: Is my mom's retirement annuity safe? Is grandma's long-term care insurance policy safe? Is my car or homeowner's policy OK?
Here's what you need to know.

There are three separate barriers between your policy and the AIG crisis that you're hearing about on TV.
1. The AIG that's in crisis and the one that wrote your insurance policy are to a large degree separate companies. The AIG on Wall Street is an umbrella company that owns the stock in a lot of smaller insurance subsidiaries. But your policy is held with the subsidiary in your state. They are tightly regulated, they are required to hold conservative assets to back up your policy, and those assets are walled off from the troubles at the parent company. It is perfectly possible for AIG to file for chapter 11 and your policy to be OK.
2. Even if your local AIG subsidiary got into financial difficulties, there's a second level of protection for policyholders. Your state insurance commissioner would step in and take over the company and run it in the interests of policyholders. Under the law, policyholders should get back 100 cents on the dollar before the company's other creditors can get a penny.
3. And even if those first two steps didn't cover you completely, there's a third protection: your local state guaranty funds. These are pools of money put together by insurance companies to provide a backstop. As a general rule of thumb, you're covered to at least $100,000 on most policies and $300,000 on life insurance death benefits. The levels may be even higher in your state.
No system is perfect. It is understandable that people are nervous. Anything shaking their insurance provider is going to rattle their confidence. But at least insurance customers have some protections to help them.
There may be one more protection as well. AIG is simply too big to be allowed to fail. If the worst came to the worst, the federal government could let the stock and bondholders lose their money. But it would be a monumental blunder of the first order to let the policyholders lose. These are people on Main Street, not Wall Street. There are hundreds of thousands of them, perhaps millions. Oh yes -- and they vote.
Write to Brett Arends at brett.arends@wsj.com

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