What Happens If Your Life Insurance Issuer Goes Out Of Business?

What happens if your life insurance issuer goes out of business? While there is not an FDIC type of organization for life insurance companies, you do have protection for your life insurance policy if your company goes out of business.

If a bank goes out of business, the FDIC insures the money you have entrusted to the bank up to 100,000 dollars. If you have paid premiums to a life insurance company for many years and they go out of business, what happens then? While there is not an FDIC type of organization for life insurance companies, you do have protection for your life insurance policy if your company goes out of business.


Joe Sostarich, a 26-year veteran of life insurance sales and management tells us, "Your life insurance policy is guaranteed by the insurance commission in your particular state." Joe also tells us, "It is rare for an insurance company to go out of business. What usually happens is that other companies purchase the policies from the troubled business." In the cases where this does not happen, there is a special fund that is set up by every state's insurance commission.




Each state's insurance commission has a fund that serves as a safety net for life insurance consumers. This fund is called a "guaranty fund." The guaranty fund is comprised of moneys that are collected from licensed insurance companies in that fund's particular state. The funds are collected by way of assessments to these companies. It is usually a requirement that an insurance company be a member of the state guaranty fund association as a condition for its ability to do business in that state. Companies can usually use the assessments as tax write-offs. The funds pay the claims on life insurance policies that were held by companies that have gone out of business. While it is extremely rare for an insurance company to go out of business, the fund is there to protect its customers.

The guaranty funds do have limits. If you have a million dollar life insurance policy you may or may not be able to recover the entire amount. Some guaranty funds have a ceiling on the amount they will pay on life insurance policies.

Not all kinds of life insurance policies are covered by the state guaranty fund. Insurance consumers need to be aware that some policies may not be eligible and choose their policies accordingly if they think there is a possibility that the company will become insolvent. If you purchase your insurance policy from an unlicensed agent you may not be covered. If your policy is covered, the guaranty fund will keep the policy in force as long as the premiums continue to be paid. Sometimes the guaranty fund will transfer your policy to another company to be managed by them. It is the right of the guaranty fund to decide what to do with your policy.

How do you find out if your insurance company has gone out of business? Joe tells us, "The state guaranty fund will usually notify insureds of the status of the company and give them instructions on what to do next." If you find out that your life insurance company is going out of business, you can contact your state insurance commission for further help and information. Remember, even if your life insurance company has gone out of business you will still need to pay the premiums in order to keep your policy active.

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