Insurance is a necessity for many people, whether it’s for health, car, or home. It provides peace of mind and a safety net for unexpected expenses.

However, what happens when the insurer goes out of business? Can you still file a claim? Do you lose your coverage? In this article, we will explore what happens to policyholders when their insurer goes out of business.

Understanding the Role of State Insurance Guaranty Associations

State Insurance Guaranty Associations (SIGAs) are designed to protect policyholders in the event of an insurance company’s insolvency. SIGAs are typically funded through assessments on insurance companies and are managed by state insurance regulators.

They are enacted under state law to provide a safety net for policyholders when insurance companies fail to meet their contractual obligations.

The Claims Process after an Insurer Goes Out of Business

If your insurance company becomes insolvent, you’ll want to contact your state insurance department to understand how the claims process will work. Your insurance agent or broker may also be able to provide some guidance.

In general, the claims process will depend on the type of insurance you have and the state you live in.

Property and Casualty Insurance

If you have property and casualty insurance (homeowners, auto, or liability insurance), SIGAs will typically pay claims up to a certain limit. The limit varies by state, but it is usually around $300,000 for each claim.

If your claim exceeds the limit, you may be out of luck.

Life Insurance

If your life insurer goes out of business, your policy may be transferred to a new insurer. Your coverage and premiums should remain the same, but it’s important to review your new policy and make sure you understand the terms.

If your policy is not transferred, your state SIGA may take over and pay out claims up to a certain limit. The limit for life insurance claims is typically higher than for property and casualty claims, but it still varies by state.

Health Insurance

If your health insurer becomes insolvent, your policy may be canceled, and you will need to find a new insurer.

In some cases, you may be able to continue coverage through COBRA (Consolidated Omnibus Budget Reconciliation Act) for a limited period of time. If your claim is denied because of an insurer’s insolvency, you may be able to file a claim with your state SIGA.

How to Protect Yourself

While SIGAs are there to protect policyholders in the event of an insurance company’s insolvency, there are steps you can take to reduce the risk of your insurer going out of business.

Check the Insurer’s Financial Stability

Before purchasing insurance from an insurer, it’s a good idea to check their financial stability. Look for ratings from independent rating agencies like A.M. Best, Moody’s, and Standard and Poor’s.

These ratings provide an indication of an insurer’s ability to meet its financial obligations.

Understand Your Policy

It’s important to understand the terms of your insurance policy. Make sure you know what is covered, what is excluded, and what your deductibles and premiums are. If you have any questions, ask your insurance agent or broker for clarification.

Consider Buying Insurance from a Large Insurer

Large insurance companies are generally more financially stable than smaller ones. While there are no guarantees, buying insurance from a larger insurer may reduce the risk of your insurer going out of business.

Conclusion

If your insurer goes out of business, it can be a stressful and confusing time. However, State Insurance Guaranty Associations are designed to protect policyholders in the event of an insurer’s insolvency.

By understanding how SIGAs work and taking steps to reduce the risk of your insurer going out of business, you can help protect yourself and your assets.