Laura Berry is a former State Farm insurance producer and insurance expert.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Car Insurance Agent

UPDATED: Feb 20, 2017

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Don't miss these facts...

  • FDIC insurance applies to insured bank deposits and instruments only, not insurance companies.
  • There is a voluntary association that helps protect policyholders if their insurance carrier becomes insolvent.
  • Most insurance companies are members of the voluntary association.


FDIC insurance covers the deposits in checking and savings accounts at FDIC-insured banks. They cover CD’s and the interest earned on CD’s up to a set amount. They do not cover annuities or life insurance contracts, even if they were purchased from the bank.

They do not cover annuities or life insurance contracts, even if they were purchased from the bank.

Learn more about life insurance below and make sure to use our free insurance comparison tool above!

How can people feel safe with life insurance companies?

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One way people who use life insurance company products can help prevent the loose of their annuities and life insurance policies is to only purchase products from AAA level companies.

Moody’s. A.M. Best and Standard & Poor’s and Fitch rate insurance companies credit worthiness.

You should base your insurance product purchases on these ratings. Select companies that have the top ratings from these companies.

This will not always guarantee that there will never be a problem, but this is a good place to start.

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State Associations that Help Protect Consumers

The National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) is a voluntary organization in all 50 states and the Washington, DC.

It provides a safety net for life insurance and annuity product consumers, helping them to have continued coverage, when their insurance carrier is insolvent. The organization started in 1983.

What happens when an insurance company becomes financially weak?

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Insurance companies are monitored by state insurance commissioners. The primary objective is to protect policyholders from losing their coverage due to financial problems of the insurance carriers.

Insurance commissioners do their best to help troubled insurance companies in their states regain their financial strength. If they are not able to do so, they declare the company insolvent.

The commissioner will then take control of the company’s operations. A receiver will be appointed.

They then supervise the company’s activities in a manner that will maximize the assets and turn them to cash. Policyholder claims are paid over general creditors of the company.

The guaranty association works with the commissioner and receiver in the liquidation of the company.

The association provides coverage to policyholders, up to the limits offered by that particular state. Amounts above this amount are claims policyholders have against the company’s remaining assets.

What Are the Basic Amounts of Coverage Provided by the Association?

There may be variations from state to state, by most states use the following guidelines for coverage:

  • $100,000 cash value for life insurance
  • $300,000 death benefits for life insurance
  • $250,000 of annuity benefits
  • $500,000 for major medical policy coverage
  • $300,000 long-term care benefits
  • $300,000 for disability benefits

The total benefits paid to an individual for one company’s insolvency is $300,000 or $500,000 for major medical plans.

With this in mind, it is a good idea to diversify the company’s you have your insurance policies with, because each different company is covered separately.

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How Does the Association Get Funds?

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Unlike FDIC insurance, where the U.S. Government steps in to cover deposits, CDs, etc. with life insurance and annuity contracts, the NOLHGA steps in and takes over a substantial amount of the assets liquidated from the insolvent company to pay claims.

However, when there are not enough funds to cover all claims, insurers in the state pay a share of the amount required to meet the covered claims.

Each company pays an amount based upon the amount of business they do in the state. Since 1983, the associations have had to contribute close to $6.5 billion.

Since many insurance companies do business in multiple states, they must be a member of the Guaranty Association in each state they do business in.

If a company has problems, the process for re-strengthening begins in the company’s home state.

If they are declared insolvent, the associations in the states they do business in each provide assets for continued coverage for policyholders in their state.

Benefits of the System

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The associations give a sense of security to life insurance and annuity policyholders. Some companies are taken over by healthier companies who will honor the failed company’s contracts.

At a minimum though, policyholders have the basic coverage of their policies, mentioned above, from the associations.

The recent insurance company insolvencies have had 96 percent of life insurance contract benefits and 88 percent of annuities covered completely.

Therefore, even though life insurance company products are not covered by FDIC insurance, they are covered by the state guaranty associations up to a certain limit.

Purchasing policies from more than one company having the highest credit rating by the rating services would be a good idea.

If you ever encounter a problem with one company, you can have a large part of your policy covered. By diversifying, hopefully only one company would have a problem.

If, however, you were unlucky enough to have two companies you are insured with go under, you would have coverage calculated separately for each company

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