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AIG policyholder

Question: I'm the beneficiary on a traditional life insurance policy (i.e. the basic AIG business) on the lives of my parents who are still alive. What protections are there on the beneficiary in various scenarios that might happen to AIG including bankruptcy, selling the traditional life business, etc. Thanks so much, and thanks for your weekly recommendations. Susan, Baltimore, MD

Answer: With all the anger directed at AIG, it seems that the millions of life insurance policyholders have been forgotten. Like you, many are nervous, wondering if their money is safe, and the hysteria in Washington isn't helping. The simple, direct answer is yes: Your money should be safe.

Life insurance policyholders have several layers of protection. None are foolproof, of course. But AIG life insurance operations have a good reputation. First, the AIG turmoil involves the parent holding company, and not its giant life insurance and retirement money management subsidiaries. Second, the life insurance operations are well funded, and by law the assets of the insurance company are segregated from the parent company. Insurance company assets are supposed to be invested conservatively. If the insurance companies did get into trouble state regulators would take them over, and the law requires them to be run by regulators in the interests of policyholders. Creditors and any other claimant take a backseat. Last, there are state insurance guaranty funds that offer another layer of protection.

There is one new buffer, perhaps the strongest yet: You, I, and all other taxpayers now own most of AIG through the federal government. Even in an era when the financially unthinkable happens, I can't imagine the federal government allowing the AIG insurance companies to short-change its policyholders.

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