What Happens If Your Life Insurance Company Fails?

Unfortunately, businesses can fail, which often leaves their customers wondering what the next step is for them. And life insurance companies are no different. Life insurance companies can fail, leaving their customers full of questions, mainly what will happen to the policy they have been paying into, and what the next step is for them when trying to find a new policy. The good news is that, if your life insurance company fails, most states have what’s known as a guaranty fund, which will pay your claims up to a certain limit if your insurer becomes insolvent.

There Are Safeguards

Life insurance companies are heavily regulated, with built-in protections that safeguard customers and pay claims, even if the company fails. These safeguards include:suitcase full of cash

  • Statutory reserves- Life insurance companies are required by state law to keep a specified amount of cash, or capital reserves, to pay out policyholders’ death benefits if the business fails and becomes insolvent. The exact amount varies from state to state, but it’s usually a minimum of 8% to 12% of the life insurance company’s total revenue.
  • Reinsurance– Life insurance companies purchase policies from other insurance companies, which spreads out risk, and allows insurers to mitigate the risk of potential losses if they fail. This means that if the company fails, the other companies will step up and make sure that any claims or death benefits are paid. If their policies are not reinsured, insurers in the US can only issue policies with a maximum limit of 10% of the company’s net worth. 
  • Guaranty association membership– Membership in one of these associations is typically mandatory. If a member’s life insurance company goes out of business, the membership association can step in and guarantee payment of benefits. The amount that the association will pay may be capped at certain limits, depending on state law: if there is a cash value, the death benefit from a guaranty association is usually capped at $100,000 to $300,000.

Choosing a Good Life Insurance Company

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Finding a good life insurance company that is financially secure can feel overwhelming. You want to make sure that the company is reputable and reliable, and will provide your family with the benefits you have been paying for with your premiums. You can find out how solid a life insurance company is by doing research with credit agencies such as A.M. Best or Moody’s. 

And if you’re looking for help, we have done some of the work for you, and have provided the top insurance companies that offer life insurance policies below; each can give you hassle-free assistance and the most competitive rates in the nation. Always check multiple sites to make sure you have bargaining power and know the advantages of each company. Make sure a hard time isn’t made harder by a financial burden, check life insurance rates today.

About The Author: Cassandra Love

With over a decade of helpful content experience Cassandra has dedicated her career to making sure people have access to relevant, easy to understand, and valuable information. After realizing a huge knowledge gap Cassandra spent years researching and working with health insurance companies to create accessible guides and articles to walk anyone through every aspect of the insurance process.
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