OK, Let’s Talk About The AIG Thing!

Wow, what a day. What a week! What a year! Being an independent life insurance agent, one of about 57,000 who have American General, AIG in their portfolio, I have had the opportunity to discuss the whole financial crisis of AIG several times today.

I have also see misinformation and even lies being spread around the internet about what would happen if AIG declares bankruptcy and while I have tried my best to intercept and shoot down some of the bad information, I simply don’t have that many missiles in my arsenal.

So, let’s talk about IT. IT seems to be coming together as a common question, “What happens to my life insurance if AIG goes bankrupt?” This is really a two part subject and answer with a few sub parts, but I will attempt to keep it simple and straightforward.

First, let’s address those who have fully guaranteed AIG policies. Those would be term insurance policies and universal life policies with a no lapse guarantee. If AIG declares bankruptcy in order to restructure, they will either keep or sell American General and it’s block of business. If they keep American General absolutely nothing will change. All of the values of your policy, the level premium, guaranteed term length and death benefit, are fully guaranteed and will not change. Other than reading about it you won’t even notice that AIG is in bankruptcy. If you die your beneficiaries will be paid in full in a timely fashion.

If AIG decides to sell off American General, which aside from AIG is a very prominent and respected life insurance company (note that AIG has been downgraded by ratings companies while American General has not), their block of business will be sold to another company who will obviously be on solid ground. If the do sell American General the only thing that will change for you is who you make your premium check out to. By law all of the guarantees of the policy have to stay intact.

I can tell you that if it does come to American General being sold, there will be plenty of interested buyers. American General has combined conservative underwriting with prudent but competitive pricing and some company will be able to pick up that block of business without the cost of underwriting. I suspect there is some lick lipping going on as we speak.

Now to the flip side of the coin. Policies that are not guaranteed. This would be universal life policies that are dependent on assumed values or are tied to indexes rather than guarantees. If AIG keeps American General you can bet your next premium check that your next premium will go up. Because you signed up for a policy with no guarantees, the company has the right to change anything it wants on the assumed side of the policy. The train wreck I have talked and talked and talked about is about to happen to that block of AIG policies.

If American General is sold, the purchasing company has the same right and you can bet they will exercise it just to recoup some of their investment cost and to force those policies into a more solid position or force them to lapse. Either way, rest assured they won’t be a liability to the new company.

Bottom line. Life insurance companies are bought and sold all the time. It just usually doesn’t happen in a hugely public way. Recent sales like Chase being bought by Protective and Traveler’s by Met Life didn’t make any headlines and the reason is that it all went down just as I explained above. I’m not saying that AIG’s problems aren’t big news, but the impact on policy holders will be minimal.