What if your insurance company went belly up? In today's turbulent financial times, this is becoming an increasingly important question. This article will walk you through the steps you should take to obtain benefits from an insolvent insurance company.
1. Do Not Panic
In the event that your car, home or life insurance company is declared insolvent, your state has legal and financial provisions in place to help protect your interests. Every state also has a guaranty fund or association that assumes responsibility for the insolvent company's claims and other policy obligations.
A guaranty fund or association is a body mandated by state law to protect policyholders and claimants who may potentially be harmed by an insurance company failure. It provides an essential safety net for the individuals and small businesses that are least capable of absorbing the financial impact if an insurer lacks the resources to pay a valid claim. Think of it as insurance for your insurance - only you do not have to pay for it.
If an insolvent insurance company has insufficient assets to pay its claims, the state guarantee fund will meet these obligations by levying funds from the state's remaining solvent insurers.
Some states have a separate fund set up specifically for property and casualty claims, and another for life and health insurance claims. In California, for example, this coverage is provided by the California Insurance Guaranty Association and California Life and Health Insurance Guaranty Association respectively. Every insurance company licensed in any given state is legally required to become a member of its guaranty association.
2. Just Follow Instructions
When an insurance company is declared insolvent, this triggers the state's guaranty fund, which immediately becomes liable to pay the company's claims. The fund also
assumes the responsibility for the insolvent insurer's claims administration.
The state guaranty association will contact every policyholder and claimant who has an open claim on file with the insolvent insurer. This communication notifies them of their rights under the Guarantee Act, and provides instructions on what they need to do.
If you have already filed a claim with the insolvent insurer, you will not need to file the same claim again with the guaranty association. The association will obtain your claim file directly from your insurance company its receiver and proceeds to settle it. Your claim will usually be settled within 60 to 90 days from the date of insolvency.
If you do not hear from your guaranty association within 30 days from the date your insurer is declared insolvent, contact your agent, state guaranty association, or state insurance department. You should also contact the guaranty association immediately if you are sued or receive notice of a new claim after your insurer has been declared insolvent. Send them a copy of the claim or lawsuit as well.
3. Verify your Coverage
The coverage provided by the state's guaranty association is subject to state-mandated limits. These limits vary by state and by type of insurance. In California, for example, the limit for car and homeowner's insurance is $500,000, while the limit for life insurance
death benefits is $250,000 and $200,000 for annuities. Most state guaranty funds include a net worth exclusion, which excludes any claims by any party whose worth exceeds the specified statutory limit.
If any other insurance applies to your claim, you will have to exhaust that coverage before the guaranty fund will pay out.
The guaranty fund covers all unpaid, covered claims, including those made by:
*The policyholder or an insured beneficiary
*Any party that has an insurable interest, such as a leasing company
*A third-party claimant, such as a plaintiff who has been awarded monetary damages for personal injury
4. Don't neglect Your Responsibilities
The policy conditions outlined in your insurance contract remain in effect, just as they would if your insurer was handling the claim. You will also have to provide the same cooperation and follow the same procedures outlined on your policy. Subrogation and salvage also remain unchanged.
Replace your policy to ensure continued insurance protection. You must get this done within 45 days of the date you insurer was declared insolvent, or risk a lapse of coverage.
5. Do Your Home Work
While your state's guaranty funds provide a safety net to protect against insurer insolvency, there is no substitute for a solvent insurance company. Always conduct some research the financial viability of an insurance company before you purchase your policy from them.