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 Virginia 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 rehabilitated or 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 Virginia Life, Accident & Sickness Insurance Guaranty Association?
The Virginia Life, Accident & Sickness Insurance Guaranty Association was created by the Virginia Legislature in 1976 to protect residents who are policyholders and beneficiaries of policies issued by an insolvent insurance company, up to specified limits. All insurance companies (with limited exceptions) licensed to write life and health insurance or annuities in Virginia are required, as a condition of doing business in the Commonwealth, to be members of the guaranty association. If a member company becomes insolvent, money to continue coverage and pay claims is raised by assessing 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 holders (and their beneficiaries) of policies or contracts of direct life insurance, annuities, and accident and sickness insurance, including health maintenance organization subscriber contracts. Persons protected by certificates of insurance issued under policies of group life or group accident and sickness 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.
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 if a person is not a resident of any U.S. state?
Under the NAIC Model Act and the laws of most states, U.S. citizens living in foreign countries or U.S. territories, possessions, or protectorates without a guaranty association will be considered residents of the state of domicile of the insurer that issued the policy or contract.
What contracts are covered?
Generally, direct individual or direct group life and accident and sickness insurance policies as well as annuity contracts issued by the guaranty association's member insurers are covered by the association. Such coverage is limited by a number of exceptions that are set forth in the Virginia Life, Accident and Sickness Insurance Guaranty Association Act (see the Additional Info section).
Types of property and casualty insurance--such as automobile, homeowners, professional liability, medical malpractice, workers' compensation, etc.--may be protected by the Virginia Property & Casualty Insurance Guaranty Association. That guaranty association can be reached at:
Guaranty Fund Management Services
One Bowdoin Square
Boston, MA 02114-2916
Are all policies fully protected?
Not always. If your insurance company fails, the maximum amount of protection provided by the Virginia guaranty association for each type of policy, no matter how many of that type of policy you bought from your company, is:
Life Insurance Death Benefit: $300,000 per insured life
Life Insurance Cash Surrender: $100,000 per insured life
Accident and Sickness Insurance Benefits: (1) $100,000 for coverage not defined as disability insurance, health benefit plans, or long-term care insurance including any net cash surrender and net cash withdrawal values; (2) $300,000 for accident and sickness insurance that constitutes disability insurance or long-term care insurance; (3) $500,000 for health benefit plans
Individual Annuity Benefits (Present Value): $250,000 in the present value of annuity benefits, including net cash surrender and net cash withdrawal values.
Structured Settlement Annuity Benefits: $250,000 in present value of annuity benefits, in the aggregate, including net cash surrender and net cash withdrawal values, if any, for each payee of a structured settlement annuity (or beneficiary or beneficiaries of the payee if deceased).
Unallocated Annuity Contracts: $5 million in benefits for one employee benefit plan sponsor whose plans own directly or in trust one or more unallocated annuity contracts. The $5 million limit does not apply to annuity benefits for any individual participating in a benefit plan established under Section 401, 403(b) or 457 of the U. S. Internal Revenue Code who (i) selected an investment option that includes investment in unallocated annuity contracts and (ii) is covered by such an unallocated annuity contract, including the beneficiaries of each such individual if deceased. For any such individual, the coverage limit is $250,000 in present value, including net cash surrender and net cash withdrawal values. Unallocated annuity contracts not owned pursuant to an employee benefit plan are not covered.
In no event shall the Association be liable to cover more than an aggregate of $350,000 in benefits with respect to any one life for life insurance, accident and sickness insurance, annuity benefits, structured settlement benefits, and 401, 403(b) or 457 plans except with respect to benefits for health benefit plans in which case the aggregate liability of the Association shall not exceed $500,000 with respect to any one individual or with respect to one owner of multiple nongroup policies of life insurance, whether the policyowner is an individual, firm, corporation, or other person, and whether the persons insured are officers, managers, employees, or other persons, more than $5,000,000 in benefits, regardless of the number of policies and contracts held by the owner.
Is long-term-care insurance covered by the guaranty association?
Yes, long-term-care insurance is considered health insurance for guaranty coverage purposes.
For example, if I own three annuities worth $100,000 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 $100,000 annuities with the same insolvent insurance company, the individual would have total guaranty association coverage of only $250,000. The value in excess of this statutory coverage limit 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.
Are guaranty association coverage levels applied on a lifetime basis regardless of the number of insolvencies, or are they applied on a per insolvent insurer basis?
Guaranty association coverage levels are applied separately for each insolvent insurer. As a result, coverage in one insurer insolvency based on an individual’s life will not reduce or eliminate coverage in another insurer insolvency relating to the same individual’s life.
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. In this situation, the guaranty association would pay to the assuming company any financial obligation it may have had to a policy owner. The Virginia guaranty association may provide coverage directly by continuing the insurer's policies and collecting any premium payments that may be due. In some situations, the Virginia 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 contractual 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 a number of months before the guaranty association is activated to provide benefit payments. Provisions may be instituted by the receiver to continue benefit payments in cases of hardship.
What is NOT protected by the guaranty association?
Policies with insurers not licensed to do business in Virginia; 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 variable annuity contract); self-insured employer plans; and fraternal benefit society insurance certificates. Certain, less commonly known insurance policies and arrangements not listed here are also not protected (guaranteed investment contracts, deposit administration contracts). If you are unsure about whether your policy is excluded from guaranty association protection, you should review the current Guaranty Association Act (see the Additional Info 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 if your insurance company is found to be insolvent and ordered liquidated.
How can I find out if my company is licensed in Virginia?
Check the Web site for the Virginia Bureau of Insurance. Click on "Consumer." Scroll down and click on "Want Information About a Company?" The Bureau 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 Virginia Life, Accident & Sickness Insurance Guaranty Association?
The law prohibits insurance agents and companies from using the Virginia guaranty association in any advertising or sales situation. 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 strong. Agents are prohibited by statute from using the existence of the guaranty association as an inducement to purchase insurance. For more information, see our Advertising Prohibition on the home page.
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—weissratings.com. You must pay to obtain its rating results.
You may also wish to contact your state insurance department 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 Bureau 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 Bureau of Insurance (804-371-9741) to determine if an insurance company is licensed to write business in Virginia. 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.
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 Virginia, you may call the Bureau of Insurance at 804-371-9741. The Bureau maintains complete and current records of all insurance companies licensed to do business in Virginia. Information about companies licensed to write insurance in Virginia may also be obtained from the Bureau’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.