Your life insurance provider guarantees that it will pay your loved ones a benefit in the event of the unforeseen to ensure their financial stability, but likely has little to say on the subject of its own potential demise.
Although anyone who has ever paid life insurance premiums knows that the companies certainly make their fair share of profit and thus very rarely fail, it is entirely possible that your insurance provider could cease to do business before you do. This raises the question of exactly what happens when that company you’ve been sending money to announces that it can never give you what you were paying for.
Thankfully, there are some safety nets in place that protect the investments of insured parties in case their provider should become insolvent, and the right information could help you to avoid a costly overreaction. One of these is the guaranty system, which place insurance providers under the jurisdiction of their respective home states as well as the federal-level guaranty association for those providers that market their services across state lines.
The guaranty association will take any action it deems appropriate in order to keep a provider in business. There are three levels of guaranty association intervention: conservation, which involves the government working with the provider in order to maintain normal business, rehabilitation, which entails government seizure of the company in an effort to guide it back to good health, or the most severe action, liquidation, or a controlled distribution of the company’s assets to third parties at fair market value to allow satisfaction of policyholder obligations. All of these processes are intended to protect the interests of the consumer first and foremost. Visit GIO today & get a quote for your own personal situation.
Insurers are also required to pay into a guaranty fund that ensures its clients are protected in the event of their failure. Individual life insurance policies are insured for up to $300,000 and there is also a $250,000 allowance for annuity depending on jurisdiction, so there is little worry of significant loss unless you are an exceptionally valuable person and have the life insurance policy to prove it.
The reassuring truth is that the majority of policy holders affected by the early death of a life insurance company are able to recover most if not all of their expenditures. The financial safeguards as well as the nature of life insurance in that there will likely not be a bank-like run on a doomed company’s failure fund unless there is also a nightmarish pandemic facilitates a reliable contingency plan in case a large provider should go bankrupt under ordinary circumstances.
The most important thing to know is that you should never alter your strategy based on the operations on your provider. Always keep up with your premium in any event. Often in guaranty cases, a policy which is not paid up at the time of intervention can be considered to be terminated, while the guaranty system is designed to maintain your coverage and benefit. Resist the compulsion to cash out your policy for a quick payday, as you risk losing out on the full cash value when restitution is made.
No one should ever have to live to bury their life insurance provider, but it does occasionally happen due to life being as unpredictable for the insurer as it is for the insured. However, there are ways to minimize your risk. Research the financial viability of different insurance companies through independent financial ratings systems such as Moody’s or Standard & Poor’s before deciding on a provider. Always obtain insurance through an “admitted” company, or one that pays into the guaranty fund and is subject to their intervention. You may want to consider holding policies from multiple providers so that your benefit is not tied to the fortunes of a single provider. This also doubles your guaranty fund allowance should your insurer fail.
