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State Guaranty Funds
Each of the 50 states has enacted legislation to protect the contract owner of that state should an insurance company be faced with insolvency. This legislation has resulted in the creation of 50 guaranty funds, required by the state but funded by the insurance companies that are admitted to do business in that state. Most state guaranty funds assess their admitted insurers an extra charge to cover any carrier insolvencies within the state. Different states have different limits of protection.

It is important to emphasize that these state guaranty funds provide the contract owner with protection without federal or state funding. All guaranty associations are funded by insurance companies and administered by the states. However, practitioners should check with their states to confirm limitations and to determine whether or not they even have the right to disclose the existence of the guaranty fund. Many states do not allow disclosure of guaranty fund information to potential contract owners because they do not want insurers and producers to rely on the fund and its guarantees when designing and marketing products. To do so could lead to abuse of the guaranty associations.

Last Updated: 9/23/2012 10:05:00 PM