In our modern society, insurance has become quite popular and many people are looking to take out insurance in order to protect themselves, their family and their property against possible losses that may occur. Insurance helps to protect against the financial burdens that unexpected or catastrophic events can cause.
The insurance provided by the insurance industry, such as health, auto, property and life insurance, is an important part of life for many individuals, businesses and organizations. But there is another type of insurance that is often overlooked and that is the safety net that is provided by insurance guaranty funds.
The insurance guaranty funds are set up by the state or province in which an insurance company is based. They provide protection for policyholders should their insurance company become insolvent. These funds are available in the USA, Canada, Australia and Europe.
In the United States, 50 states have legislation to protect policyholders who have coverage from insurance companies that become insolvent. The coverage provided by the state guaranty funds protect consumers and business owners against claims that are up to the limit of the fund, which can range from $50,000 to $300,000.
The state guaranty funds are funded by an assessment on all insurance companies doing business in the state that is mandated by law. The funds are also bolstered by contributions from reinsurance companies, or special purpose insurance companies, that insure the insurance companies.
The insurance guaranty fund is the consumers best asset when it comes to protecting the policy holder against losses due to the insolvency of their insurance company. The fund pays out on valid claims that were in effect when the insurance company became insolvent. The fund also provides assistance to policyholders who are unable to find a new insurance company willing to insure them.
When a consumers insurance company becomes insolvent, the guaranty fund will provide access to up to the limit of the fund. In order to access the fund, the consumer must contact their state insurance department. The consumer must then prove that they had a valid policy with the insolvent insurance company.
In the United States, there is also a National Association of Insurance Commissioners that serves as an organization for state insurance regulators and provides education and assistance.
In summary, insurance guaranty funds are a great way for consumers to protect themselves in the event their insurance company becomes insolvent. The funds are funded by insurance companies and reinsurance companies, and they provide protection up to the limit of the fund. We all hope that our insurance companies remain solvent, but in the event that it is not, the insurance guaranty funds provide a safety net for consumers.
