If you have a life insurance policy with an insurance company that is bankrupt, you don’t need to do anything. As long as the company is a legitimate entity it will be covered, to a degree, by a guaranty fund. It will be the job of the state to pay on the claim through this funding. You just need to follow their instructions to submit your claim.
In today’s world, it seems like a frightening possibility that your insurance company could go bankrupt and leave you without a life insurance policy. This is a real concern and is something to always consider when deciding on an insurance company; what is the financial strength of the insurance company? What are the customer reviews like of the company?
It is always a good idea to do a thorough amount of research and not just depend on the price when making your decision to go with an insurance company for a life insurance policy. One of the benefits to using our free rate comparison tool at the top of this page is that it allows you to get life insurance quotes from many different companies to find the best one for you. Just enter your zip code for free insurance rates now!
However, almost all states have funds similar to the FDIC, or the Federal Deposit Insurance Corporation, which insure banks and individual accounts up to a certain amount. If your insurance company were to go insolvent, these similar state funds (which are referred to as guaranty funds) will help pay your claim up to certain amounts, depending on your state.
The average benefit for all claims is around $300,000 for home, auto and life insurance policies, but again it will depend on your state as well as your policy. The state guaranty funds are a form of protection that the state offers not just for life insurance, but for home, auto, property and a few other types of insurance. Most states split up the types of insurance into two guaranty funds, but again this will vary by state.
Further, you are not required to prepare for this in anyway, other than to check to see what your state guaranty may pay out if this worst-case scenario were to happen. There is not an application for protection; rather, it is a guarantee of a certain amount of benefit.
How do I know if my life insurance company has gone bankrupt?
Besides all the media coverage, the insurance company is required to contact you with a letter once they have been placed on some sort of regulatory control. Further, your state’s guaranty fund may contact you as well to begin discussing the amount of benefits for which you will be eligible. Either the insurance company or the guaranty fund will begin to instruct what the next steps will be, as you don’t want to stop making payments on the policy. If you do, there could still be a chance your contact could lapse due to nonpayment of the life insurance policy premiums.
The state guaranty usually will also give instructions for filing the claim. The preferred course of action is to file the claim prior to the life insurance company going insolvent (during the regulatory control period) and then your claim will be paid. Further, they will give you a date in which you will need to find a new insurer; this date will be the official date of insolvency for the life insurance company.
What is the best way to avoid having to deal with a bankrupt life insurance company?
Start by doing your research. Talk with multiple life insurance agents, do quote comparisons with multiple life insurance companies and, most importantly, always check the financial standing of the insurance company. While there is no guarantee that a strong financial standing with a company will not still lead to a bankrupt company, history has shown this to be a positive and strong indicator of the financial stability with a company. Resources that provided respected independent analysis of financial strength of insurance companies include AM Best and Standard & Poor’s.
Further, look into the actual history of the company. How long have they been around? Have they had many ups and downs, or been quite stable over the years? What do friends, family and online forums say about them? These indicators can help you choose the best policy for now and for the future.
Finally, if you already are in the unfortunate situation that your life insurance company has gone bankrupt, you will need to start looking for that new policy. Take this opportunity to re-evaluate your life insurance needs. Consider a term life insurance policy if you were previously carrying a whole life policy, or vice versa. Look at the stated death benefit; does that adequately fit your loved ones needs if you were to pass away? Use this time to make sure that the next life insurance policy you get will last for the long haul and most importantly, that your loved ones will be protected.
If you are looking to find more information about life insurance policies or even a new life insurance policy because your past company went bankrupt, use the life insurance comparison tool on this page to start right now!