Insurers Avoid Getting Soaked In Subprime Storm

Tax-deferred annuities and annuities yielding monthly payments are usually covered for their current value, or as much as $100,000. On larger contracts, monthly payments will probably be reduced.

Health-insurance guarantees depend on the state. Claims in the pipeline will be paid. Any policy not guaranteed renewable will be canceled.

The guaranty associations don't cover pure variable products such as annuities, whose value is linked to investments. They're held in a legally segregated account, said Joel Levine, senior vice president of Moody's life insurance group in New York. In theory, that should protect an account value from a general failure of the firm.

Hybrid products -- for example, variable annuities with guaranteed minimum death or income benefits -- are another matter. So far, there has never been a failure involving hybrids, says Peter Gallanis, president of the National Organization of Life and Health Insurance Guaranty Associations. If the guaranteed portion is backed by the insurance company's assets, the guaranty funds would step in. "It all depends on how the contract is written," Gallanis said.

A separate guaranty fund covers auto and homeowners insurance, usually for $300,000. You're protected only for claims in the pipeline. If your insurer fails, your policies will be canceled immediately. You will have to race for coverage somewhere else.

These risks are remote, but why chance them at all? Go for top-rated coverage, every time.

Jane Bryant Quinn, author of "Smart and Simple Financial Strategies for Busy People," is a Bloomberg News columnist. Alexis Leondis contributed to this column.