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Life Insurance Group > Life insurance FAQs > Life insurance in your state » Are you protected if your insurer turns bankrupt?...

Are you protected if your insurer turns bankrupt?

Thursday, September 29th, 2011

The state government is responsible for consumer protection against insurance companies. The state government regulates the financial health of every licensed insurance company. If the insurance company turns bankrupt, it is the sole responsibility of the state government to refund the money owed to the policy holder and protect them in any adverse circumstance.

If an insurance provider is bankrupt, the state’s insurance department protects the interest of the policyholders. The guarantee fund from the state’s insurance department will transfer the policies over other stable insurance vendors within the state. If the situation remains insolvent, the policy will continue to run by the guarantee fund. However, the policies will be subjected to coverage limitation as per the state laws.

Determining the probability of coverage and the amount of coverage offered by the state government on your life insurance policy is simple. However, you must review your annuity contract, if you desire to know that whether you are protected on your variable annuity life insurance policy.

To inquire about your state’s coverage terms and conditions with respect to your policy, visit the website of National Organization of Life and Health Insurance Guarantee Associations. If you require further clarification contact your state’s association immediately.

For increasing the security on your state guarantee fund, you can obtain several different policies from different insurance vendors within your state. Therefore, two different policies with different vendors will expand your coverage percentage. This technique help you maximize your financial security, yet it is a highly impractical options since you may have to pay several hundred dollars extra for the same coverage amount.

On the contrary, if you have an annuity life insurance cover, applying this strategy will help. The state’s guarantee fund will offer a duplicate coverage level to your spouse, if they own an annuity. During the 2008-2009 market recession guarantees on variable annuity has been a major concern for insurance providers dealing in the variable annuity, and consequently, several players in this segment sought money from the government. Hence, to maximize your security levels on your life insurance policy, investing in annuities is a feasible option.

However, the state’s guarantee fund lacks a prefunded reservoir. What it means is that in situation of bankruptcy, the state government passes the losses to the other licensed providers as per their in-state market share. Insurance providers don not fund into the state’s guarantee fund, and in adverse circumstances it is ambiguous if the funding will survive without taxpayer involvement.

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