by Henry S. Miller

Created on: December 02, 2008   Last Updated: December 12, 2008

Is your insurance company broke? Dealing with an insolvent insurance company can be a very sticky issue. What exactly happens when your insurance company becomes insolvent? And more importantly, how do you collect the money that you are owed?

Most states, including California, have established insurance guarantee associations or guarantee funds. These associations have been established as a way to bail out bankrupt insurance companies, and all insurance providers must subscribe to a guarantee association in order to become licensed. In California, the Insurance Guarantee Association (CIGA), and California Life and Health Insurance Guarantee Association (CLHIGA) will end up paying policyholder's claims in event of an insolvency.

So what exactly do you do if your insurance company becomes insolvent? First, remember to keep making the monthly payments on your policy. More often than not, your policy will simply be transferred to another insurance provider. In the event of a transfer, you want to be as up to date as possible with your payments to ensure the validity of your policy during and after the transfer. If this happens, you will be contacted by your new insurance provider and filled in on all the details.

If your policy is not picked up by another insurance provider, you will have to file a claim with the guarantee association or fund in your state (in California, the CIGA for property, casualty and worker's compensation claims; or the CLHIGA for life and health insurance claims). Usually, the claim filed with your insolvent insurance company will be on record and directly transferred to the guarantee association. The CIGA directly contacts anyone it has a claim for after an insurance company becomes insolvent, informing you of who is handling your claim and outlining your rights under the Guarantee Act. If you have not been contacted and it has been more than 30 days since your insurance company went under, the CIGA has a website to get you started if you are filing a claim in California: caiga.org.

The guarantee association reviews each claim individually and appropriates funds on a case by case basis. All guarantee associations limit the amount they will pay individual policy holders. In California, the limit is $500,000 but this varies depending on the state.

If your claim is more than the amount statutorily allowed in your state, or your claim is not covered by a guarantee association, your last option is to directly file a claim with the state liquidator. In the process of liquidating an insolvent insurance company, a state Superior Court sells all of the company's assets in an attempt to pay off policyholders and creditors (for more information about liquidation visit the California Conservation and Liquidation Office ). When a liquidator is chosen, they will usually ask for all open claims within the company to be transfered to them directly, saving you the trouble of contacting them with your claim.

Unfortunately, with the limited resources of a liquidator, you will rarely be able to collect the full amount you are owed. But don't let that stop you from trying, liquidation is still a very effective way of getting a large portion of the money you are owed.

Whatever your case may be, don't forget that you are entitled to the money promised you in your insurance policy. Don't be shy about letting your voice be heard. With a little bit of work, you'll be able to get your hands on it.

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