With the federal bail out and takeover of AIG a few days ago it is now pretty apparent that assets from the insurance giant will be up for sale soon. With the terms of the bailout loan only being two years in length and at an interest rate of 11.5%, while there won’t be a fire sale mentality, there will most certainly be very little foot dragging.
The good news for the government and AIG is that apart from their financial products unit, the branch that insured mortgages, there are some very healthy and profitable parts of the company. There will be some very healthy and wealthy companies that will be looking seriously at purchasing, for instance, American General Life Insurance.
For all of those policy holders with guaranteed products through American General, their term insurance products and their universal life products with external no lapse guarantees, the sale of the company will have virtually no impact other than who their premium checks are made out to. By law all of the guarantees that are part of the American General policy will remain intact with the new company.
Where the rubber, all I’ve said over the years about non guaranteed universal life and whole life policies, will meet the road will be in this sale. Because many of those products have no guarantees or short guarantees, they will be subject to rate increases when the guarantees run out and I think it is fair to say that those rate increases aren’t something that might happen. They will happen.
The good news will be for those who still have some guaranteed time left and even better for those that are still guaranteed and have cash value. If you work soon with an independent agent to look at alternatives, you may be able to replace your current policy with a fully guaranteed policy at potentially a better rate than you are currently paying. If you have cash value it can be rolled into the new policy tax free through a 1035 exchange.
Bottom line. In a few years this will be just another financial footnote. I can say unequivocally that none of my customers will be impacted by this as they all have guaranteed products. If I were king I would ban all non guaranteed products and force those who want to play with their money to do it outside of the scope of their family protection.