What happens when my insurance company goes out of business?

In most cases, a guaranty association will continue coverage as long as premiums are paid or cash value exists. It may do this directly, or, most often, it may transfer the policy to another insurance company. In any case, policyholders should continue making premium payments to keep their coverage in force.

How is policy coverage determined?

Coverage is determined by Massachusetts law and policy language at the time the guaranty association is activated to provide protection (when the member insurer is found to be insolvent and ordered liquidated by a court). In light of changes in the law and the dramatic variations in policy language, the association cannot make statements regarding coverage of a specific policy unless it is a policy with a company for which the association has been activated to provide protection.

What is the Massachusetts Life & Health Insurance Guaranty Association?

The Massachusetts Life & Health Insurance Guaranty Association was created by the Massachusetts legislature in 1986 to protect state residents who are policyholders and beneficiaries of policies issued by an insolvent insurance company, up to specified limits. All legal reserve insurance companies (with limited exceptions) licensed to write life and health insurance or annuities in Massachusetts are required, as a condition of doing business in the state, to be members of the guaranty association. If a member company becomes insolvent, money to continue coverage and pay claims is obtained through assessments of the guaranty association's other member insurance companies writing the same line or lines of insurance as the insolvent company. All 50 states, the District of Columbia, and Puerto Rico have life and health insurance guaranty associations.

Who is protected?

Life and health insurance guaranty associations cover individual policyholders and their beneficiaries; typically, persons protected by certificates of insurance issued under policies of group life or group health insurance are also covered. Limits on benefits and coverage are established by state law. For more information about coverage, see the questions below or contact the guaranty association or state insurance department.

If I move to another state after purchasing a policy, will I still have guaranty association coverage? If so, who will provide it?

If you purchased a policy from a company that is a member insurer of the state guaranty association where you reside, you will have coverage. Guaranty association protection is generally provided by the association in your state of residence at the date of the liquidation order regardless of where your policy was purchased. Policyholders who reside in states where the insolvent insurer was not licensed are covered, in most cases, by the guaranty association of the state where the failed company was domiciled.

What type of contracts are covered?

Subject to the limitations on the amounts of coverage, generally, direct individual or direct group life and health insurance policies as well as individual annuity contracts issued by the guaranty association's member insurers are covered by the association. Such coverage is limited by the terms of the Massachusetts Life & Health Insurance Guaranty Association Law (a link to the Law can be found in the Additional Information section).

Types of property and casualty insurance--such as automobile, homeowners, professional liability, medical malpractice, workers' compensation, etc.--may be protected by the Massachusetts property & casualty guaranty fund, which can be reached at:

Guaranty Fund Management Services
One Bowdoin Square
Boston, MA 02114-2916
617.227.7020

Are all policies fully protected?

No. If your insurance company fails, the maximum amount of Guaranty Association protection provided for each type of policy, no matter how many of that type of policy there are, is listed below:

Life insurance death benefit: $300,000
Life Insurance cash value: $100,000

Health insurance benefits
$300,000 for disability income insurance and long term care insurance
$500,000 for basic hospital expense insurance, basic medical-surgical insurance, or major medical expense insurance
$100,000 for all other types of health insurance

Annuities
$250,000 in the present value of annuity benefits including net cash surrender and net cash withdrawal values. With respect to each payee of a structured settlement annuity (or beneficiary or beneficiaries of the payee if deceased) $250,000 in the present value of annuity benefits in the aggregate, including net cash surrender and net cash withdrawal values.

For any one life the Guaranty Association is not liable for benefits aggregating more than $300,000 , or $500,000 for basic hospital expense insurance. basic medical-surgical insurance or major medical expense insurance benefits.

For example, if I own three annuities worth $250,000 each and my insurance company fails, how much is protected?

The total protection per owner per member company is $250,000 for all annuity contracts. As a result if an individual owned three $250,000 annuities with the same insolvent insurance company, the guaranty association would provide coverage on only one of those annuities. The remaining annuities would be eligible for submission as a policyholder claim in the receivership, and the annuity holder may receive distributions as the company’s assets are liquidated by the receiver.

What will happen to my insurance coverage if the guaranty association becomes liable for my policy?

Protection can be provided in one of several different ways. For example, a financially sound insurer may take over the troubled company's policies and assume the responsibility for continuing coverage and paying covered claims. The Massachusetts guaranty association may provide coverage directly by continuing the insurer's policies or issuing replacement policies with the guaranty association; in some situations, the Massachusetts guaranty association may work with other state guaranty associations to develop an overall plan to provide protection for the failed insurer's policyholders. The amount of protection provided and when you receive it may depend on the particular arrangement worked out for handling the failed insurer's obligations.

When might the guaranty association provide benefits?

If your insurer is no longer able to fulfill its obligations, ongoing benefit payments to you may be reduced or suspended by the courts in order to sort out the affairs of the financially troubled insurer. As a result, you may have to wait many months before the guaranty association is activated to provide benefit payments. Hardship provisions may be instituted by the receiver to continue benefit payments.

What is NOT protected by the guaranty association?

Policies with insurers not licensed to do business in Massachusetts; policy benefits the insurer does not guarantee or for which the policyholder bears the risk (such as the non-guaranteed portion of a variable life insurance or annuity contract); any policy or contract of reinsurance, other than reinsurance for which assumption certificates have been issued; any annuity contract or group annuity certificate that is not issued to and owned by an individual, except to the extent of any annuity benefits guaranteed to an individual by the insurer under any such contract or certificate; any portion of a policy or contract to the extent that the rate of interest exceeds the average rate provided for in the Law; fraternal benefit society insurance certificates; policies issued by health maintenance organizations (HMO’s); hospital or medical service corporations; Medicare parts C & D; and certain other less commonly known insurance policies or arrangements not listed here are not protected. If you are unsure about whether your policy is excluded from guaranty Association protection, you should review the current Massachusetts Life and Health Insurance Guaranty Association Law (a link to the Law can be found in the Additional Information section).

How will I know if my life or health insurance company has failed or is unable to fulfill its obligations to its policyholders?

You will receive a notification from the receiver and/or the Massachusetts guaranty association if your insurance company is found to be insolvent and ordered liquidated.

How can I find out if my company is licensed in Massachusetts?

Contact the Massachusetts Division of Insurance (617.521.7794). The Division maintains complete and current records of all insurance companies licensed to do business in the state.

Why hasn't my agent or company told me more about the Massachusetts Life & Health Insurance Guaranty Association?

The law prohibits insurance agents and companies from using the Massachusetts guaranty association in any advertising. The guaranty association is not and should not be a substitute for your prudent selection of an insurance company that is well managed and financially stable. Agents are prohibited by statute from using this Web site or the existence of the guaranty association as an inducement to purchase insurance. For more information, see our Advertising Prohibition.

When Buying Insurance

You should not rely upon the existence of the guaranty association when making a decision to obtain insurance.

Where can I get advice on purchasing life, health, or annuity products?

The guaranty association does not provide financial advice or comment on the financial condition of any particular company. You can obtain advice from captive insurance agents, independent insurance brokers, and rating agencies. Generally, captive agents sell products from a single insurer. Brokers usually can sell the products of multiple insurers.

Rating agencies assign comparative ratings to insurers based on various criteria. Most rating agencies are paid by the insurer to do an assessment examination and to issue a rating. This is the case with the largest and most well-known agencies, such as Standard and Poor’s, A. M. Best, Moodys, and Fitch Ratings. Since the companies pay to have themselves rated, those ratings are generally available to the public without charge. One rating agency does not accept payment from the insurer being rated—TheStreet.com. You must pay to obtain its rating results.

You may also wish to contact the Division of Insurance regarding information on a particular company.

Are you a State agency?

No. The guaranty association is a private entity, with its membership made up of all the life and health insurers licensed in the state (in fact, under state law an insurer must be a member of the association to be licensed to do business). The association was created by the legislature to serve as a safety net (subject to statutory limits) for residents should their life or health insurer fail. By creating the association, the legislature was able to ensure continued coverage to residents affected by their insurer’s failure. The association does work in cooperation with the Division of Insurance in fulfilling its role of protecting residents whose insurance company is being liquidated.

How can I determine the financial soundness of my insurance company?

Consumers can contact the Division of Insurance (617.521.7794) to determine if an insurance company is licensed to write business in Massachusetts. Consumers can also check the financial strength ratings of the company, which are issued by various ratings agencies (see “Where can I get advice on purchasing life, health, or annuity products?” above).

If my company is in the process of rehabilitation/conservation and I have an emergency and need to withdraw monies from my annuity, what is the process?

Surrenders and loans may be allowed on a case-by-case basis for genuine hardship situations upon written application to the Receiver. Hardship circumstances and procedures will differ from company to company and (after liquidation) from guaranty association to guaranty association. Examples of hardship cases may include (1) terminal illness or permanent disability; (2) substantial medical expenses not covered by medical insurance; (3) financial difficulties resulting in inability to pay for essential life support needs like food and shelter; (4) imminent removal from a hospital, nursing home, or other medical care facility due to inability to pay; (5) imminent bankruptcy; and (6) immediate need for college tuition payments for a dependent child.

Is long-term-care insurance covered by the guaranty association?

Yes, long-term-care insurance is typically considered health insurance and covered by the guaranty association.

Are variable annuities covered by the guaranty association?

Generally speaking, a variable annuity contract with general account guarantees will be eligible for guaranty association coverage, subject to applicable limits and exclusions on coverage. However, specific questions regarding coverage will be determined by the applicable guaranty association based on the terms of the contract, other relevant facts, and the guaranty association law in effect at the time of liquidation.

If my company is liquidated, do I have to file a claim with the association?

If your insurance company is liquidated, you will receive a notice from the court-appointed Receiver (typically the Insurance Commissioner of the company’s state of domicile), who will oversee the liquidation of the company and inform you of any new claims procedures. There may be no change in the claims submission process—guaranty associations, working with the Receiver, sometimes continue processing claims using the liquidated company’s existing claims staff if that will maximize the speed and efficiency with which claims are processed. In other cases, the associations process the claims themselves or use an independent processing company, known as a third-party administrator, to process claims. In any event, you will be notified of the ongoing claims process. If you wish to continue coverage, you must continue to pay the premium required by your policy.

Should I continue to pay my premiums?

Yes. If you are paying premiums to your company and wish to keep your coverage in place, you must continue to do so—those premiums go to the guaranty association providing you continuing coverage. If you stop paying premiums, your insurance coverage may be terminated.

Is my company covered by the guaranty association?

The guaranty association provides coverage to owners of covered policies issued by member insurers (life, health, and annuity insurers licensed to write business in the state). To determine if a company is licensed to write business in Massachusetts, you may call the Division of Insurance at 617.521.7794. The Division maintains complete and current records of all insurance companies licensed to do business in Massachusetts. Information about companies licensed to write insurance in Massachusetts may also be obtained from the Division's Web site.

What happens if the benefits promised in my policy are greater than the coverage limits provided by the guaranty association?

Guaranty associations, in conjunction with the Receiver, may be able to negotiate a transfer of a company’s policies, up to the amount of the guaranty association benefit limits, to a financially sound insurer. If an association administers claims against the policy and the benefit limits are reached, any claim in excess of that limit may be submitted as a policyholder-level claim against the estate of the failed insurance company, and the contract holder may receive distributions as the company’s assets are liquidated by the Receiver.

NOTE: This information is not intended as legal advice, and no liability is assumed in connection with its use. The applicable state guaranty association statute is the controlling authority, regardless of any information presented on this site. Users should seek advice from a qualified attorney and should not rely on this compilation when considering any questions relating to guaranty association coverage.