Life Insurance Guaranty Fund

Life Insurance Guaranty Funds Explained

Learning that your life insurance company is having financial problems can be frightening experience, but life insurance policyholders should take comfort in knowing that state guaranty associations are there to provide protection and continuing life insurance coverage, for you and your beneficiaries. The life insurance guaranty system safety net helps keep the promises of the life insurance industry, even when insurance companies fail.

A Life Insurance Guaranty Fund is a fund created by state law that provides financial relief to life insurance policyholders in a state that suffers losses resulting from the insolvency of a life insurance company.

Many states provide up to $300,000 of coverage for each policyholder. However, state rules may limit the coverage amount to between $100,000 and $500,000. Life insurance companies contribute to the guaranty funds in each state where they offer life insurance.

Coverage provided by the state guaranty funds is usually limited to individual policyholders and their beneficiaries.

All states, Puerto Rico and the District of Columbia have guaranty associations that protect life insurance policyholders, up to specified limits, in the event an insurance company is financially unable to meet its financial obligations.

Generally, where the individual life insurance policyholder lives at the time the insurance company is unable to pay their claims determines which guaranty association is responsible. In certain circumstances, other factors, such as where the insurance company is licensed to do business, determine which guaranty association may be responsible.


Life and Health Insurance Guaranty Funds

Much like the FDIC’s coverage of the banking industry, state guaranty associations provide benefits up to a specified limit.

For the associations, these limits are spelled out in state law. While the laws that govern maximum benefits available and types of policies covered may vary somewhat from state to state, most states provide at least:

  • $300,000 in life insurance death benefits (In New York it is about $500,000)
  • $100,000 in cash surrender or withdrawal value for life insurance
  • $100,000 in withdrawal and cash values for annuities
  • $100,000 in health insurance policy benefits

Since its creation in 1983, the National Organization of Life and Health Insurance Guaranty Associations has assisted its member guaranty associations in guaranteeing more than $20.2 billion in coverage benefits for policyholders and annuitants of insolvent companies. In that time, the associations have provided protection for more than two million policyholders and worked on more than 60 multi-state insolvencies.


Life Insurance Guaranty Fund - Facts and Figures

(Source: National Organization of Life and Health Insurance Guaranty Associations)

Since NOLHGA was created in 1983, state guaranty associations have:

  • Provided protection to more than 2.2 million policyholders in more than 60 multi-state insolvencies
  • Guaranteed more than $21.2 billion in coverage benefits
  • Contributed $4.4 billion to ensure that policyholders received their benefits


Guaranty Association Laws

Each state’s life and health guaranty association is governed by state law. You can access the summary and key provisions for each individual state guaranty fund.


What happens when a life insurance company becomes insolvent?

Most people in a state who buy life insurance are protected if a life insurance company becomes insolvent. When an insurance company becomes insolvent, it is unable to pay the costs of doing business.


How do Guaranty Funds operate?

When an authorized life insurance company becomes insolvent and is liquidated by a court order, the state guaranty funds will pay covered claims. The claims are paid according to the terms of the original life insurance policy.


Who is covered?

Life Insurance Guaranty Funds cover residents of the state of the guaranty fund. The State Guaranty Fund only covers losses of insurance companies that were licensed to do business in the state at the time of the insolvency. Most insurers licensed to do business in a state must belong to one of the Guaranty Associations.


What is covered?

The life insurance guaranty funds in a state usually cover the death of an insured policyholder from a licensed insurance company in the state for up to $300,000 per policy. However, the limits of coverage may vary from between $100,000 and $500,000 per policy.


Financial Ratings

It’s important to learn about your life insurance company ratings before choosing a life insurance carrier. Even after you have purchased life insurance, it’s a good idea to review the financial rating of your insurer on a regular basis.


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Life Insurance Guaranty Fund Resources:


National Organization of Life and Health Guaranty Associations

State Guaranty Funds - Research information on individual state guaranty funds.

Insurance Information Institute - A review of guaranty funds by the Insurance Information Institute (iii.org).

Impairments and Insolvencies - Here is a partial list of companies that have been taken over by state insurance departments ("placed in receivership") since NOLHGA’s creation in 1983.


Insurance Company Rating Agencies

The organizations listed below provide financial ratings of insurance companies and other information.

AM Best Company
Fitch Ratings
Moody’s
Standard & Poor’s
Weiss Ratings


Related Life Insurance Organizations

American Council of Life Insurers - The ACLI is a trade association representing more than 350 life insurance companies operating in the United States.

National Association of Insurance Commissioners - The NAIC is the organization of insurance regulators from the 50 states, the District of Columbia, and the four U.S. territories.

National Conference of Insurance Guaranty Funds - The NCIGF supports the property and casualty guaranty funds located in the 50 states, Puerto Rico, and the District of Columbia.



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