People are in a panic about AIG. In the last 24 hours I have been swamped with emails from anxious readers around America who want to know: Is my mom's retirement annuity safe? Is grandma's long-term care insurance policy safe? Is my car or homeowner's policy OK?

Here's what you need to know.

There are three separate firewalls between you and the AIG crisis you are hearing about on TV.

1.The AIG that's in crisis and the one that wrote your insurance policy are effectively separate companies. AIG on Wall Street is an umbrella company that owns the stock in a lot of smaller insurance subsidiaries. But your policy is held with the subsidiary in your state. They are tightly regulated, they are required to hold conservative assets to back up your policy, and those assets are walled off from the troubles at the parent company. It is perfectly possible for AIG to file for chapter 11 and your policy to be OK.

2. Even if your local AIG subsidiary got into financial difficulties, there's a second level of protection for policyholders like you. Your state insurance commissioner would step in and put the company in receivership, and under state law his or her primary aim and responsibility would be to make sure that you were made whole. Policyholders get back 100 cents on the dollar before the company's other creditors can get a penny

3. And even if those first two steps didn't cover you completely, there's a third protection: your local state guaranty funds. These are pools of money put together by insurance companies to provide a backstop. As a general rule of thumb, you're covered to at least $100,000 on most policies and $300,000 on life insurance death benefits. The levels may be even higher in your state.

No system is perfect. It is understandable that people are nervous. Anything shaking their insurance provider is going to rattle their confidence. But the system backing up insurers isn't too bad.

There may be one more protection as well. AIG is simply too big to be allowed to fail. If the worst came to the worst, the federal government could let the stock and bondholders lose their money. But it would be a monumental blunder of the first order to let the policyholders lose. These are people on Main Street, not Wall Street. There are hundreds of thousands of them, perhaps millions. Oh yes – and they vote.