What happens if your insurance company goes bankrupt?

What happens if your insurance company goes bankrupt? -

In these difficult economic times, we had some people ask us what would happen if their insurer should go belly. Because insurance laws vary state by state, there are no clear answers but we will give you a general overview.
First, the state insurance office regulates insurance issues for their state. As part of this function, they require various reports to monitor the financial health and well-being of licensed insurance companies in their state. But because many large insurers do not operate in a single state, or as in the recent case of AIG, in a sector of activity, bankruptcy can and still do occur.
So what happens if you open a policy or claim and your insurance company is in financial trouble? First, the state will work with the insurer to help solve the problem. And if that fails, the good news is that states work guarantee fund to protect policyholders in the event of insolvency of the insurer. These funds will support the claims, often giving priority to cases of hardship. Some offices of the state also have a short-term insurance cover mechanism to allow policyholders to find alternative cover. On the downside, however, claim payments may be delayed, regulated or capped.
There are also many lines of insurance excluded. Guarantee Funds usually cover home and car, and similar types of insurance, but usually have exclusions. Common exclusions include life, accident and health, annuity, disability, and mortgage. Many states also draw the line protections for high net worth policyholders (+ 25 million). For details, you should check with your state law.
If the worst come to worst, your local agent should be your first and best source of information. You can also learn more about the subject in an excellent overview of the insolvency of insurers and the Insurance Information Institute guarantee fund. And you can find links to state websites of the insurance department on the map. Residents of New England, DC, and Virginia can find links to guarantee funds, which provide copies of the laws in those states.

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