Since 1979, nearly 200,000 investors have plunked down more than $3.5 billion to buy what became the hottest new life insurance product in decades: single premium deferred annuities and their offshoots.

The annuities were sold by companies affiliated with the Baldwin-United Corp., mainly the National Investors Life Insurance Co., based here, and University Life of Indiana.

Baldwin, a $9 billion financial conglomerate, offered a beguiling promise. In return for a one-time premium--usually between $5,000 and $100,000--the insurer guaranteed a high, tax-deferred return that would begin to pay back to the investor at a point, usually seven years, in the future.

One annuity holder said that in return for a $100,000 premium he paid National Investors, he expected to receive about $300,000 in seven years. If the guaranteed return--sometimes as high as 15 percent--fell more than three quarters of a percentage point in any year, the policy holder could cash in and collect, without penalty, the premium and interest.

Now, however, Baldwin-United is reeling under roughly $900 million in bank debts and brokers and investors alike are worried that those investments are not as safe as they seemed.

At the time, the investments seemed secure--after all, insurance companies are required to have reserves sufficient to pay off all potential policy claims. According to former Arkansas insurance commissioner W. H. L. Woodyard, many people were "unsure about Social Security and private pension plans and others were anxious to shelter investments from taxes."

Baldwin-United, which traces its roots to the company that makes Baldwin pianos and organs, offered all that to investors, until the music stopped.

Last week, Morley Thompson, the former piano salesman who became the architect of Baldwin's transition into a financial conglomerate, took a three-month "leave of absence" as president. Other company officials will negotiate with angry bankers, who could throw the parent company into bankruptcy if they want.

Because Baldwin is a holding company--a firm designed to own other firms--its income is primarily dependent upon funds provided by its subsidiaries.

Ron Taylor, Arkansas assistant insurance commissioner, said that there "isn't any question" that Baldwin would like to get more cash out of the insurance companies. But Taylor, who also is chief examiner, said it would be "absurd" for Baldwin even to try.

A Baldwin-United bankruptcy need not mean disaster for companies it owns, including the insurance subsidiaries. The insurance companies, responsible for paying off on the annuities, have assets to cover their entire liability. But many of those assets are stocks issued by companies that are part of the Baldwin empire.

There is no ready market for many of those stocks, although they represent shares of companies--such as the country's biggest mortgage insurer, the MGIC Investment Corp.--that are solid, profitable enterprises. But at a time when potential investors know Baldwin probably will have to sell some of its enterprises to generate cash to pay off its bank loans and can drive a hard bargain with Baldwin, the potential value of those stocks is lowered.

As a result of Baldwin's now public troubles, the spell of the single premium deferred annuity has been broken.

Brokers at leading firms such as Merrill Lynch--who once were Baldwin's leading salesmen--have stopped selling the annuities. The Connecticut insurance department last week halted sales in that state. Many investors have been cashing in the policies, paying a 5 percent penalty to Baldwin and a further penalty to the Internal Revenue Service on the interest.

Sales of the annuities slowed markedly at the start of the year--they were $1.5 billion in 1981 and $1.6 billion in 1982--as the parent company's problems became public. Until this year, redemptions were negligible. According to the Securities and Exchange Commission, during the three weeks ended April 8, however, investors cashed in $76 million of their annuities while sales were only $27 million.

The heart of Baldwin's single premium deferred annuities (SPDAs) operations is here in Little Rock.

Regulators in this state's tiny insurance department have been fighting a year-long battle to make sure that the two large insurance companies owned by Baldwin can survive intact no matter what happens to the parent corporation.

Taylor, the assistant insurance commissioner, said he believes that the agency has been successful. If either National Investors Life Insurance Co. or National Investors Pension Insurance Co. were forced to liquidate, he said, their assets are sufficient to pay off all insurance claims in full, based on financial reports of last Dec. 31.

A year ago, however--when Baldwin-United was trying to raise the $1.17 billion it needed to buy MGIC--regulators became convinced the companies were not solvent.

Officials ruled that the capital base of both companies was "impaired" and, to shore up those companies, required Baldwin to pump in about $280 million--most of which was in the form of stock in companies affiliated with Baldwin.

Both insurance companies are expected to file their next reports (for the period ending March 31) this Friday. Since Arkansas has told both companies that they cannot buy any "affiliated securities" without prior approval of the Arkansas insurance department, they expect the companies to be solvent.

But both officials admit it is difficult to evaluate the financial status of the companies because so much of their assets are tied up in affiliated securities.

Like most state insurance departments, Arkansas relies upon the Securities Valuation Office of the National Association of Insurance Commissioners to determine the worth of affiliated securities. It was in part because the office put a lower price on affiliated securities than did the insurance companies that Baldwin was forced to ante up more securities last year.

Taylor said the problems at the insurance companies that sell SPDAs have come about because the subsidiaries have two principal purposes in the overall Baldwin plan: generating cash and producing paper losses.

Acquisition-minded Baldwin needed the cash to buy companies and used the tax losses to offset profits in other areas of its business--which includes the core musical instrument company, a savings and loan association, all forms of insurance and real estate as well as trading stamps (it owns both S&H and Top Value).

Regulators admit that Baldwin constructed such a complicated financial arrangement to move around assets and policies and premium payments that the tiny Arkansas insurance department was nearly overwhelmed.

In the Baldwin plan, insurance profits were funneled to National Investors Life (NILIC), which is taxed as a life insurance company (maximum tax rate: 26 percent) and losses were logged in National Investors Pension (NIPIC), which is consolidated into the overall Baldwin-United income and taxed at a maximum 46 percent rate. NILIC earned profits taxed at 26 percent while NIPIC generated losses worth 46 cents on the dollar (because they offset other profits).

Although few SPDA purchasers knew it, nearly all SPDAs--whether sold by University Life or NILIC--were re-sold to NIPIC. The IRS is looking into some of the intra-company transfers and an unfavorable ruling could cost NILIC as much as $50 million in taxes.

The banks have deferred payment until July 12. Other Baldwin creditors may accelerate payment of debts.

All together, Baldwin could be on the hook for as much as $900 million in current and accelerated debt. It estimates its cash will run out in mid-July. Unable to milk its insurance companies for much more cash it likely will rely either on the forbearance of its bankers or sell some of its holdings.

Regulators will be watching to make sure forced sales don't reduce the value of the assets at the insurance subsidiaries. "We'll do what we have to. But we want to be careful not to panic policyholders," said Taylor.