What Insurance 'Bailout' Means for Your Policy

"I'm obviously hoping I don't die. If I do and they only get $300,000, we fortunately have investments spread around in other places. I'm not overly concerned, given the size of the company," Draddy said.

Not everyone, however, trusts that these companies are as solvent as they say they are or confident that the guaranty associations are capable of covering consumers' policies if the companies collapse.

Bob Hunter, director of the Consumer Federation of America, says policy holders should be concerned.

Tips for Customers

"Of course people need to worry," said Hunter. "The guaranty system is pretty flimsy and it might take years to get back what you're owed. Nationally if guaranty associations were tapped to the maximum amount, it would only create $9 billion a year. That's inadequate for one large insolvency. If you're talking two or more, or a string of little ones it becomes even more problematic."

Hunter recommended people do their due diligence and research the financial stability of the companies from which they plan to purchase policies.

"Do research," he said to those holding policies or looking to buy them. "Try to see if the companies are applying for TARP? Have they gotten special treatment from home state commissioners to change their accounting rules? Do research into what it will cost you to get out of your policy. If you've had a policy for a long time, you can get out without a penalty, but a new policy the penalty might be too big."

Hunter also advised people to buy short term policies paid each year or two and to not put a lot of money in an annuity – an investment paid out in regular increments over a long period of time.

The government and the companies say the bailout is necessary to shore up an industry, vital to the U.S. economy, but hit hard by the ongoing financial crisis. Millions of families' financial stability is tied up in insurance policies. Federal help, they say, would keep the companies on solid ground and buoy consumer confidence.

"This is not a bailout," said Peter Gallanis, president of the National Organization of Life and Health Insurance Guaranty Associations. "These companies are getting a small infusion of federal capital. This is a program aimed at keeping insurance companies operating on the same keel rather than rescuing those in trouble."

Life insurance companies' obligations – paying out claims and annuities -- stretch out over decades, said Gallanis. Given the current sour state of the economy, the companies need a little help now, so they can pay out their obligations later.

What the Insurers Say

Life insurers – which have $5 trillion in assets -- invest the premiums they receive from consumers into markets like bonds and mortgages, making them an important pillar of the economy.

"Insurance companies play an important role in capital markets -- bonds, commercial residential mortgages and other securities," said Terri Vaughan, CEO of the National Association of Insurance Commissioners.

The Treasury Department's decision to allot funds to the companies, she said, was "consistent with the government's intent to stabilize the economy."

Hartford Financial Services Group Inc. and Lincoln National Corp., two of the nation's largest life insurers, and several others applied to become thrift holding companies last fall, a prerequisite to receiving TARP funds.

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