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What Happens If My Insurance Company Fails?

Everyone’s been focused on brokerage failures and bank failures lately, wondering what happens and who backs them in the event of a failure… that is until we learned that AIG (American International Group) was in serious trouble [3]. This begs the question very few have asked before, what happens if my insurance company fails? The quick answer is that most states have a guaranty that will back the fund up to a certain dollar amount.

State Guaranty Associations & Funds

Unlike banks and brokerages, which are protected by FDIC insurance and SIPC insurance respectively, insurance companies are often backed by “guaranty associations” or “guaranty funds” at the state level. In Maryland, the Maryland Life & Health Insurance Guaranty Corporation insures life and health insurances while the Property and Casualty Insurance Guaranty Corporation insures auto, homeowners, rental, and other insurances. The limit of the coverage is $300,000 in life insurance death benefits, $100k in life insurance cash surrender/withdrawal, and $100k in present value of annuity benefits. I didn’t look up the Property and Casualty insurance limits but it’s generally $300,000.

For more information, visit the National Conference of Insurance Guaranty Funds [4] as they have lots of information on the subject. If you would like to learn more about the guaranty association or fund in your state, the NCIGF has a directory of each state’s Department of Insurance [5] where you can get specific state information. Finally, there are several publications [6] that may be of interest to you.

(Photo: thetruthabout [7])