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What Happens if Your Life Insurer Goes Under?

One of the biggest fears that life insurance customers have is that their insurance company will go bankrupt before they can pay out the death benefit they’ve promised. It makes sense to be afraid – life insurance policies can be issued and be in-force for 50 years before the death benefit needs to be paid out. And who can guarantee that an insurance company will still be in business then?

That is why your State Guaranty Association exists. The State Guaranty Association in each state guarantees that an insured can get the cash value of his or her policy or that the beneficiaries can receive the death benefit even if their insurer becomes insolvent when it’s time to pay.

Naturally, there are limits. The limits vary by state but are commonly capped between $100,000 and $300,000. You can visit our state specific insurance guide pages and find your state to see what your limits are. It’s also important to remember that guaranty associations are there to protect you from insurer insolvency, but not much more. If your policy lapses, you neglect to pay a bill or you insist that they didn’t send one, the guaranty association in your state won’t do anything to help you. They simply back up the payment of an insurer who has gone bankrupt – and only up to the limit. You will need to provide proof of a valid policy and comply with all other association requirements.

As always, the best defense for consumers is a good offense. And what that means for life insurance customers is that they should thoroughly research their insurance company before they buy insurance. You can do that by visiting the A.M. Best website to see their evaluation of your company’s financial security before you buy the insurance policy you are considering. A.M. Best studies the financials of insurers and assigns a letter grade to each company that represents how financially secure they are.


August 15, 2010



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