The short answer: fixed annuities and MYGAs from A-rated insurance companies are among the safest financial products available to retirees. The longer answer depends entirely on which type of annuity you’re asking about — because “annuity” covers products ranging from rock-solid guaranteed contracts to complex instruments that carry real market risk.
This guide separates fact from fear and explains exactly what protections you have, where the risks actually lie, and how to stay on the safe side.
Key Takeaways
- Fixed annuities and MYGAs from A-rated carriers offer guaranteed principal and guaranteed interest — no market risk
- State insurance guaranty associations protect policyholders if a carrier fails — typically $250,000–$500,000 per insurer
- Variable annuities carry investment risk — your account value can decline with the market
- The biggest risks with annuities are not losing money, but liquidity risk and inflation risk
- Carrier financial strength (AM Best rating) is the most important safety factor to evaluate
What Type of Annuity Are We Talking About?
Safety varies dramatically by annuity type. There are four main categories:
- Fixed annuities and MYGAs — Guaranteed rate, guaranteed principal. The safest type.
- Fixed indexed annuities (FIAs) — Principal protection with upside linked to an index. Safe from loss, but complex.
- Registered index-linked annuities (RILAs) — Buffer protection (not full protection) with index-linked growth. Moderate risk.
- Variable annuities — Invested in sub-accounts like mutual funds. Can lose value. Highest risk among annuity types.
When most people ask “are annuities safe,” they’re thinking about fixed annuities. The answer there is yes — with the right carrier. Variable annuities are a different conversation entirely.
How Do Fixed Annuity Guarantees Work?
A fixed annuity or MYGA guarantee is a contractual obligation of the insurance company. When you deposit $200,000 into a 5-year MYGA at 5.00%, the carrier is legally required to return $255,256 at maturity. That obligation is backed by the insurer’s general account — a pool of assets (primarily investment-grade bonds) held in reserve specifically to meet policyholder obligations.
State insurance regulators require carriers to maintain specific reserve levels and capital ratios. These requirements are why insurance companies are generally more conservative than banks — they’re legally required to be.
What Happens If an Insurance Company Fails?
This is the question everyone asks. The answer is reassuring but requires some nuance.
Every state has an insurance guaranty association that protects policyholders if a member insurance company becomes insolvent. Coverage limits vary by state, but most states protect:
- $250,000 in annuity contract value (most states)
- $300,000–$500,000 in some states (New York: $500,000; California: $250,000; Texas: $250,000)
This is similar to FDIC insurance for bank accounts, but managed at the state level. The National Organization of Life & Health Insurance Guaranty Associations (NOLHGA) coordinates across states for multi-state insolvencies.
The practical reality: major insurance company failures are rare. The last significant U.S. life insurer failure affecting annuity holders was Executive Life in 1991. Modern carriers with A-ratings from AM Best have demonstrated financial strength over decades. The guaranty association backstop exists as a safety net, but you shouldn’t need to rely on it if you stick to A-rated carriers.
How to Read an AM Best Rating
AM Best rates insurance companies on financial strength. The scale:
| AM Best Rating | Description | Our Recommendation |
|---|---|---|
| A++, A+ | Superior financial strength | Excellent choice |
| A, A- | Excellent financial strength | Good choice |
| B++, B+ | Good financial strength | Use caution |
| B, B- | Fair financial strength | Not recommended |
| C or below | Marginal / Weak | Avoid |
AnnuityJournal.org only features rates from carriers rated A- or better. The slightly higher rate offered by a B-rated carrier is not worth the added risk on a 5–7 year commitment.
What Are the Real Risks of Fixed Annuities?
Fixed annuities carry minimal financial risk — but that doesn’t mean zero risk. The real concerns are:
- Liquidity risk: Your money is locked up for the surrender period. If you need funds urgently and exceed the free-withdrawal amount, you’ll pay surrender charges. This is the most common real-world problem with annuities.
- Inflation risk: A 5.00% guaranteed rate feels great today. If inflation runs at 4.00% for 5 years, your real return is only 1.00%. Fixed annuities don’t automatically adjust for inflation.
- Opportunity cost: If interest rates rise significantly after you lock in, you may earn less than you could have by waiting. Rate locks work both ways.
- Carrier risk: Very low with A-rated carriers, but not zero. This is why carrier ratings matter and why diversifying across multiple carriers (if your assets are large) makes sense.
Are Variable Annuities Safe?
Variable annuities are a fundamentally different product. Your premium is invested in sub-accounts that function like mutual funds. If the market drops 30%, your variable annuity account value drops too. Some variable annuities include guaranteed living benefits (GLWBs) that protect a minimum income stream — but the account value itself is not protected.
Variable annuities are not “unsafe” in a scam sense, but they carry market risk that fixed annuities do not. They’re appropriate for some investors in specific situations — but they’re not the right tool if your primary concern is capital preservation.
How to Buy an Annuity Safely
- Check the AM Best rating — A- or better only
- Verify state guaranty limits — Keep each carrier position below your state’s guaranty limit
- Understand the surrender schedule — Know exactly when you can access your money without penalty
- Work with an independent broker — Fiduciary brokers are required to act in your interest; captive agents represent only one company
- Read the contract — Especially the free-withdrawal provision, surrender charges, and death benefit language
- Use the free-look period — Most states require 10–30 days to cancel penalty-free after receiving your contract
Related reading: See our guide to how market value adjustments (MVAs) affect your annuity.
Frequently Asked Questions
Are annuities FDIC insured?
No. Annuities are insurance products, not bank deposits, so they are not covered by FDIC insurance. Instead, they’re protected by state insurance guaranty associations, which provide similar (though not identical) protection — typically $250,000–$500,000 per insurer depending on your state.
Can you lose money in an annuity?
In a fixed annuity or MYGA held to maturity, no — your principal and interest are guaranteed. In a variable annuity, yes — your account value fluctuates with the underlying investments. If you surrender any annuity early, surrender charges could reduce your value below what you deposited.
What if the insurance company goes bankrupt?
State guaranty associations cover up to $250,000–$500,000 per carrier (limits vary by state). In most insolvencies, another carrier acquires the policies at or near full value. Major carrier failures are historically rare for A-rated companies — the last significant one was in the early 1990s.
Are annuities safe for retirement?
Fixed annuities and MYGAs from A-rated carriers are considered among the safest retirement vehicles available. They provide guaranteed income or guaranteed accumulation with no market risk, which is exactly what many retirees need for a portion of their savings.
How do I know if an annuity company is financially strong?
Check the AM Best rating at ambest.com. Look for A-, A, A+, or A++ ratings. You can also check S&P and Moody’s ratings. Avoid any carrier not rated by at least one major rating agency, and be skeptical of unusually high rates that suggest a carrier is taking excess investment risk.
Is it safe to put all your retirement savings into an annuity?
Most financial advisors recommend against putting 100% of retirement assets into any single product. A common approach: place 30%–60% of liquid retirement savings in fixed annuities for guaranteed income and growth, keeping the rest in diversified investments for inflation protection and liquidity.
