Life insurance polices are backed by state guarantee associations, but the coverage offered varies drastically from state to state. Some products, like variable annuities, can be recovered in full because of the way they’re structured, but if you have term life insurance or a universal policy, you should know the limitations of your state’s coverage…

Typically, insurance guaranty associations cover up to $300,000 in death benefits, up to $100,000 in cash-surrender values on whole and universal life policies and up to $100,000 in the present value of an annuity, said Peter Gallanis, president of the National Organization of Life and Health Insurance Guaranty Associations.

But that varies. California’s guaranty association essentially imposes a deductible, saying it will pay the lesser of 80% of the failed insurer’s contractual obligation or up to $250,000 in death benefits. It will also pay up to $100,000 in cash-surrender or withdrawal values.

New Jersey, on the other hand, provides up to $500,000 in coverage for death benefits and annuity payments, without the deductible. Arizona’s guaranty association fits neatly into the industry standard — up to $300,000 in death benefits and $100,000 for annuities and cash value — but it doesn’t pay for guaranteed investment contracts at all.

Generally speaking, you would be covered by the guaranty association in the state where you reside. However, if you bought an insurance policy through a company pension plan — as some people buy guaranteed investment contracts through a 401(k) — you could be covered by the association in the state where the plan is domiciled, Gallanis said.

Check out the National Organization of Life and Health Insurance Guaranty Associations for a full listing of all state protections.

National Organization of Life and Health Insurance Guaranty Associations
How to check your life insurer’s health [The Los Angeles Times]
(Photo: JasonRogersFooDogGiraff eBee)

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