What happens when a life insurer fails? As scary as that thought is, it does happen from time to time. But before you panic, there’s one final line of defense against insurer insolvency that you’ve got to know about!
Enter the NOLHGA!
Unlike with banks, insurance companies are regulated at the state level, not the federal level. That means there’s no FDIC as there is with banks that can step in with money if an insurer goes insolvent. Yet before you abandon all hope there is an agency that can help in the event of a life insurer’s failure.
The National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) can help determine the level of protection your state provides.
The reality is that most states have coverage levels of $100,000 to $300,000 for individual policyholders. Visit NOLHGA.com and click on the policyholder info tab to see a drop-down menu with links to your state’s guaranty fund.
Since NOLHGA was created in 1983, state guaranty associations have:
- Provided protection to more than 2.6 million policyholders
- Guaranteed more than $23 billion in coverage benefits
- Contributed approximately $6.5 billion toward the fulfillment of insurer promises
However, there is one caution about state guaranty associations. In the very unlikely event your insurer fails, the associations usually won’t have enough money on hand to make everyone whole on their policy immediately. So there might be an indeterminate waiting period until you get your money.
Contrast that with the FDIC approach: If a bank goes bust today, you get your insured money tomorrow.
If you’re going to buy substantial insurance, then be sure to have it split up among different insurers to be proactive about protecting yourself. Never exceed your state’s guaranty fund coverage level in any one policy.
Again, though, Clark always recommends sticking with insurance companies that are rated A++ or A+ by A.M. Best. That’s the single best way of avoiding the threat of having to wait for your money if an insurer goes bust!