re: OT- Cooking the Books

They're insurance products (contracts). You find ones that allow you to purchase guarantees or enhanced benefits or maybe the rules of the product include a stop-loss floor.

Insurance companies are required to keep at least 90% of their liabilities in reserves. In other words, if they have $10 billion in outstanding death benefits on the books, the insurance company is going to have no less than $9 billion in physical liquid cash reserves.

Insurance companies are the most solvent companies in the world. They don't default.

And no, they aren't equity based. If somebody put $100,000 into an annuity, they can purchase guarantees like maybe a 6% GMIB (guaranteed minimum income benefit), and and EDB (enhanced death benefit) that is based on that 6% annual guaranteed growth. Then the annuity owner can take that $100,000 and purchase some mutual funds or indexed funds or funds of funds inside the annuity, and they get the better of growth. If the funds in the market do 10%, they now have $110,000. But if the funds in the market do -10%, they have $106,000 because they purchased the 6% GMIB rider. And if they died the next day, their beneficiary would receive the $106,000 because they also purchased the EDB rider.

And with the cash value life, you find one with a stop-loss floor and high watermark lock-in. Part of your premium pays for the life insurance death benefit and the over-funding additional can be invested in funds or indexes. If the invested amount grows, you get to lock-in your growth at certain intervals. If the invested amount has negative gains, you have a 0% floor and can't lose your locked in cash value.

The world markets can come crumbling down and insurance products with guarantees and riders like this are going to just keep doing what they do and be virtually unaffected.