AIG Life Insurance Company Review

AIG and its subsidiary companies have become, let’s say ‘infamous’ since September 2008. The company itself very adamantly outlines a pre-financial crisis company and a post-financial crisis AIG. They provide a very complete disclosure on the company website about its woes with credit default swaps and options.

That said, the AIG Life Insurance division policy holders were never in jeopardy of losing their money. Assets within the separate accounts of annuities and life policies are segregated and protected.

Though the company claims to be recovering, even announcing $1.5 Billion net revenue first quarter in 2010, they may never recover their once heralded reputation and brand. Nonetheless, business goes on for AIG including their life insurance business and there are plans to further segregate the divisions of the business.

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September 2008: What Happened to AIG

When the U.S. residential mortgage market deteriorated and housing prices dropped suddenly, AIG was burned on two fronts. At the time, they owned a large number of bundles of mortgages known as ‘credit default swaps’, which sharply declined in value. Additionally, AIG was involved in selling insurance against a reduction in value of the same type of securities.

As the values dropped, AIG simply couldn’t sell the bundled securities nor cover the options insurance they had sold. These circumstances created an enormous liquidity crisis, the point in time where the government controversially stepped in.

Ultimately, the government loaned AIG $120 Billion and now taxpayers own 79.9% of the company. Most of the cash was paid directly to other financial companies that had insured their market bets through AIG.

This unprecedented action has created a grey area for which ‘certain’ private companies may have the backing of the U.S. Government and taxpayer’s money. Now the questions are ‘Who is too big to fail?’ and ‘What risks will companies take when their failures are backed by unlimited public money?’

AIG Term Life Insurance

The company still offers term insurance through American General Insurance. They currently offer level premium terms for almost any specified number of years between ten and thirty five.

The term offering of specific numbers of years lets the policy owner really dial in their period of protection. For example, if they have a newborn and want to insure themselves until the child is finished with college, they can opt for a 22 or 23 year term.

Another unique offering is term coverage with guaranteed level premiums for more than thirty years. Many companies don’t even offer thirty year term, however AIG’s term division is offering up to thirty five years. This extremely long term is unique and can protect the policy owner’s insurability for an extended time.

Return of Premium Term Insurance

The subsidiary is also currently offering ‘return of premium’ term insurance. For a substantially higher premium, the policy premiums will be refunded at the end of the specified term of fifteen, twenty, or thirty years.

Some consider this the best of both worlds, though the return of premium option will likely carry significantly higher premiums. Live or die, the policy owner will collect on the policy.

American Elite Whole Life Insurance

AIG does continue to directly offer a whole life policy they call the American Elite Whole Life Insurance. This permanent insurance provides a lifetime of protection and level premiums, just as traditional whole life does.

Available riders include a ‘premium waiver’ option to protect the policy owner in the event of a disability. There is also a ‘child rider’, a conversion to term option, as well as an accelerated death benefit for terminally ill.

There are two attractive options that will protect insurability and allow for additional insurance without evidence of insurability. Policy owners should consider protecting against insurability risk when they anticipate changes in their family or income down the road. Needing more protection later and not being able to secure it due to a contracted illness, disease, or injury could be devastating.

Universal Life Insurance through American General

There is a simple yet very flexible universal life policy being offered through AIG’s subsidiary, American General Life Insurance. The policy offers both flexibility with premiums and adjustability with the death benefit.

The company has a unique feature called the ‘zero interest catch up feature’. This option allows the policy owner to begin with lower premiums and catch up later without penalty so long as the policy doesn’t lapse.

Five Variable Life Insurance Choices

AIG directly offers five different variable life policies, each of which is designed to accomplish a specific purpose. The policies vary in their premium schedules and necessary insurance, meaning some will accumulate cash more rapidly than others.

All of the variable policies offer a number of industry leading fund and money management options. These include such financial companies as Fidelity, JPMorgan, Franklin Templeton, PIMCO, Valic, and Vanguard. Portfolios can range from conservative to aggressive growth, depending on the time horizon and risk tolerance of the policy owners.

The Income Advantage Select VUL is designed to provide a supplemental income later in life. The amount of protection is minimized so that cash value can grow and be accessed via loans or withdrawals without threat of lapse.

Conversely, the Protection Advantage VUL is designed to maximize protection while maintaining the flexibility of a universal policy. This policy has built in guarantees to protect the owner against a lapse in coverage, market downturns, and to provide lifetime coverage.

Additionally, AIG offers the Survivor Advantage VUL, Corporate Investor Select VUL, and the Executive Advantage VUL. These policies are designed to protect spouses and business partners or entities.

Businesses can take advantage of life insurance as well as families. The coverage can be utilized to protect the business or a partner from the unexpected passing of a key person. Additionally, universal policies can be used as an alternative compensation tool to attract, retain, or reward critical employees.

Summary for AIG

Though the company is still in the life insurance business, there is a substantial concern of business risk with AIG. Even though the investments and cash values are always protected, there are questions of the company’s leadership, financial strength, and in particular their ability to pay future claims.

Their subsidiary American General, which carries the term and universal policies for AIG, gets ratings of ‘strong’ and ‘very good’ from the independent agencies.

On the other hand, the contrarian opinion might say that a company fully backed by the Federal Government is the safest choice. This may be true; however it brings into the picture a number of other risks. Insurance shoppers must consider political and legislative risk (how long will the ‘bail out’ culture remain?) in addition to the business and credit risks of the company.

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