Don’t Cherish The Association

Don't Cherish The Association - www.earlebird.com

So, we all know interest rates are really low.  Also, we know that low interest rates affect your bank CDs, your fixed or index annuities, and any other investment product tied to interest rates.  Which, by the way, is just about every investment ever created.  One way or another, all investments are tied together.  Heck, just look at what happened during the 2008 financial crisis.  In 2008, every investment plummeted except for the only perceived safe haven: the U.S. treasury bonds.

Ok, so rates are low, and many insurance agents are running out of attractive annuity products to offer you.  Fixed annuity rates are in the 1% range and index annuity participation rates are virtually unsellable at their current levels.  So when times are tough, agents and annuity marketing firms will scour the globe trying to find companies offering attractive fixed rates. Well, guess what? Many agents have found some products with attractive yields–and in their opinions, products worth selling.  The companies they are pushing are not insurance companies; they are called associations.

Associations are non-profit entities usually formed by religious or ethnic groups.  For example, in 1886, a small group of Hungarian immigrants in Hazelton, PA thought they couldn’t get a fair life insurance policy.  So, they essentially self-insured the group or community by creating an association that was funded by the members and protected the members.  These associations still exist today but on a much grander national scale.  They are national, but most of them are far from sophisticated.  And most of them are controlled and supervised by a small group of trustees.

What I failed to mention is that many associations sell fixed rate annuity products to their members.  The membership process is very simple and it could cost $25 at the most to join.  Now, you can’t outwit an annuity agent.  So what these wise birds are doing is having their clients become association members, then selling them a fixed annuity product.  Can you believe that some of these annuity products are offering rates as high as 3.75%?!  Leave it to an annuity agent to sniff out yield.  These agents are heroes for finding these uncovered products for the poor, forgotten American saver, right?  Not so fast, speedy!

Yes, the yield is competitive, but many associations are not official life insurance companies.  If not an insurance company, then the state insurance departments don’t supervise their books and records.  And most importantly, neither the association nor the annuity premiums are part of each state’s guarantee corporation.  State guarantee corporations are the insurance companies’ answer to having no FDIC bank protection.  Guarantee corps are not FDIC, but  at least there’s something.  It may take years to get your money back from the guarantee corps, but the key is that you will get your money back.  Associations don’t have the protection given to true insurance companies.

Many associations do have clean books and own conservative investments.  However, investments can change at any moment, and to be honest, I’m not concerned about the investment portfolio.  I am terrified by the people who control these associations.  Embezzlement is my greatest concern when dealing with associations.  Let’s say an association brings in 20 mil of annuity premium this year.  These trustees have never seen so much premium.  What would happen if funds were to be embezzled and the association was forced into bankruptcy?  I’ll tell you.  People would lose their nest eggs and there would be no recourse.  For your information, a popular annuity being sold is through a Lithuanian association.  What happens if some trustee takes off to Lithuania?  I don’t have any Lithuanian connections, do you?  I didn’t think so.

If it sounds too good to be true, be careful.  Associations sound great but carry way too much risk for my blood.  Many agents have no idea what they are selling and need to be educated on the risks.  I hope those selling agents have property in Lithuania if the crap ever hits the fan.

Pay-it Forward:

I love when I see all the famous people who started their work careers at a McDonald’s restaurant.  People like Paul Ryan, Seal and Jay Leno were lowly burger flippers or robotic servers.  The bottom line is that we all started at the simplest of jobs.  In other words, no job is too small for our youth.  Just remember that when discussing work with your son or daughter.

Earl E Bird

I'm Earl E. Bird and I am very concerned about saving for my senior years. I am amazed at the stumbling blocks that exist when saving for retirement. That's why I take my time when making decisions on building my nest egg.

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About the author

I'm Earl E. Bird and I am very concerned about saving for my senior years. I am amazed at the stumbling blocks that exist when saving for retirement. That's why I take my time when making decisions on building my nest egg.

More posts by | Visit the site of Earl E Bird

 
 
 
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