What happens if my insurance company goes out of business?
First, the Insurance Commissioner of the domiciled state steps in and corrective actions are taken. Generally in circumstances of an insurer failure, the commissioner tries to get another company to step in and take over the business. For example, American General took over AIG’s contracts back in 2001 and now pays its claims.
If that doesn’t happen then the fall back is to each state’s guaranty association, which will cover policyholder’s benefits in their states up to a specific limit. Each state guaranty association works slightly differently. Below are details for Pennsylvania and New Jersey, but if you are a resident of a different state or want more details about PA or NJ, resources can be found on the National Organization of Life & Health Insurance Guaranty Associations website.
The maximum amount of protection provided by the Pennsylvania guaranty association for each type of policy, no matter how many of that type of policy you bought from your company, is:
Life Insurance Death Benefit: $300,000 per insured life
Life Insurance Cash Surrender: $100,000 per insured life
Health Insurance Claims: $300,000 per insured life
Annuity Benefits as of Date of Insolvency:
$300,000 if contract has been annuitized
$100,000 if contract is in deferred status
Under no circumstances can the statutory obligation of the Guaranty Association exceed the contractual obligation of the insolvent insurer. There is an overall lifetime maximum per individual of $300,000.
The maximum amount of protection provided by the New Jersey guaranty association, for each type of policy, no matter how many of that type of policy you bought from your company, is, with respect to any one insured individual:
Life Insurance Death Benefit: $500,000
Life Insurance Cash Surrender: $100,000
Annuity Benefits (Cash Surrender Value): $100,000
Annuity Benefits (Present Value): $500,000
Health Insurance Claims: No limit