What Happens When Your Life Insurer Kicks The Bucket?
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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Comments:
Looks like you'd have to move to said state first if you wanted to be covered by their law.
With the state of the financial industry in general it would be a good idea to look into the indicators of how stable your insurance company is.
Things are currently stacked where if we were to have a katrina type hurricane season companies writing home owners policies could be unable to pay the claims. You can thank the lack of regulation.
I did extensive research when we changed auto & home owners insurance to make sure this new company had a good track record of paying claims and was financially sound. The same thing could go for life insurance.
The other important thing to note is that usually those guarantor associations aren't really involved. Few insurance companies fail for over-writing term life insurance. If an insurance company fails, the life insurance portfolio is a valuable asset. It usually gets sold (at a discount) to another life insurer. They take over the policies.
Almost all life insurance companies use reinsurers. This means they are not liable for the full claim on a policy, unless there was blatant disregard for guidelines of issuing the policy. Between the reinsurers and the state regulators, it would be hard to fail as a life insurance company even if you tried.
If you look at AIG, the life insurance side of the business was extremely health. They had ample reserves and the ability to use reinsurers to pay part of any claims. AIG life insurance policy owners had as much chance of losing their coverage as a Metlife or Banner policy owner.
Is that picture from a real body? ::shutters::
So can you shop around for the best state to buy a policy in or is that verboten?