State Guaranty Associations
State guaranty associations provide a safety net for those who have bought life or health insurance or an annuity. Like the FDIC for banks but regulated at the state level, guaranty associations cover policies and annuities to state-determined limits.
- Written by Christian Simmons
Christian Simmons is a writer for RetireGuide and a member of the Association for Financial Counseling & Planning Education (AFCPE®). He covers Medicare and important retirement topics. Christian is a former winner of a Florida Society of News Editors journalism contest and has written professionally since 2016.Read More
- Edited ByMichael Santiago
Senior Financial Editor
Michael Santiago, a senior financial editor, joined RetireGuide in 2023. With over 10 years of professional writing and editing experience, he brings a wealth of expertise in creating content for diverse industries, including travel and healthcare. Having traveled to more than 40 countries across five continents and lived in Europe and Asia for several years, Michael's global perspective enriches his work. He combines his strong writing skills, editorial judgment and passion for crafting accurate and engrossing content to enhance the user experience on RetireGuide.Read More
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Brandon Renfro, Ph.D., CFP®, RICP®, EA
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Brandon Renfro is a Retirement and Social Security Expert and financial planner. He focuses on helping clients create a secure financial future in retirement and co-owns Belonging Wealth Management. He is also a former finance professor and writes for several publications.Read More
- Published: June 19, 2023
- Updated: July 13, 2023
- 7 min read time
- This page features 6 Cited Research Articles
- Edited By
- State guaranty associations protect individual life insurance policy holders and annuity holders if their insurance provider becomes insolvent. All licensed insurance companies must be a member of the guaranty association in their state of operation.
- Regulated by each state’s insurance commissioner, guaranty associations cover insurance and annuity contracts up to a limit. Each state determines its own limits.
- Most guaranty associations cover up to at least $250,000, but the exact amount can vary by state.
What Are State Guaranty Associations?
State guaranty associations protect the customers of insurance providers in a similar way the Federal Deposit Insurance Corporation (FDIC) protects bank and credit union customers. If you purchase a policy or annuity from an insurance company that becomes insolvent, the state guaranty association steps in to protect customers’ funds up to a predetermined limit set by the state.
Guaranty associations are non-profit organizations regulated by each state rather than federal legislation. Each state’s guaranty association is typically overseen by the state insurance commissioner and an appointed board of directors.
All 50 states have state guaranty associations, as does the District of Columbia and Puerto Rico. Some states maintain separate guaranty associations for life and health insurance policies and for property and casualty policies. The U.S. Virgin Islands also has a guaranty association but only for property and casualty insurance.
Most people are familiar with FIDC insurance and the protection it provides to bank deposits, but state guaranty associations provide similar protection for insurance and annuities.
How State Guaranty Associations Work
Insurance companies must be members of the guaranty association in the states in which they are licensed. If an insurance provider turns insolvent, the state guaranty association will levy an assessment against all other insurance companies selling the same type of product in that state, then use the gathered funds to cover the insolvent firm’s financial obligations.
State guaranty associations may also voluntarily join the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA), which takes in funds from its members to cover policyholders if multi-state insurance providers become insolvent. The legislation that regulates state guaranty associations comes from NOLHGA’s model act which has been modified several times since it was first introduced in 1971.
State guaranty associations offer policy and annuity holders protection up to certain amounts depending on the type of policy or annuity.
In most states, the guaranty association will pay up to $300,000 in claims for life insurance policies and up to $250,000 in claims for annuity contracts. Each state sets its own limits and exceptions. For instance, California’s guaranty association will cover only 80% of an annuity, up to a limit of $250,000, while Connecticut will cover up to $500,00 for annuities.
State guaranty association intervention may not always be required even if an insurance company becomes insolvent. For instance, if an insolvent company sells its insurance and annuity contracts, the financial responsibility for those contracts goes to the purchasing provider instead. Basically, your annuity or policy is transferred to the new company.
Benefits of State Guaranty Associations for Annuity Holders
State guaranty associations provide a safety net for insurance companies and their customers. Just as the FDIC protects individuals from a bank collapse, state guaranty associations reassure individuals that their annuities, and life and health insurance policies won’t disappear if their insurance company goes broke. That reassurance provides a host of secondary advantages.
- Confidence in Retirement Planning
- Insurance and annuities are foundational blocks in many retirement plans. When you know your insurance or annuity will be honored, you can build a solid financial plan to ensure a comfortable future in your retirement.
- Preservation of Annuity Benefits and Payouts
- By assuring the payout of annuities (up to the state-specific dollar and percentage amount), state guaranty associations make annuities a cost-effective option for retirees and those planning their retirement.
- Peace of Mind
- Most of all, the protection state guaranty associations offer gives you peace of mind, leaving you with mental bandwidth for other financial decisions.
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State Guaranty Associations’ Coverage Limits and Scope
Most state guaranty associations offer coverage of at least $500,000 in health benefit plans; $300,000 in life insurance death benefits; and $250,000 in annuity benefits, according to NOLHGA.
The limits for deferred annuity payouts can vary by state, along with the limits for structured settlement annuities – which are often much higher.
Annuities Supported by Strong State Guaranty Associations
Like all investments, it’s important to consult with a financial planner before purchasing an annuity. Your advisor can help you decide which annuity is most appropriate for your retirement goals and plans. Also, insurance companies are not permitted to use their membership in state guaranty associations in their advertising or promotion, so your advisor can also help you figure out what questions to ask.
- Research the Association
- Research the guaranty association in your state. Your state’s guaranty association falls under the jurisdiction of your state’s insurance commissioner.
- Learn the Limits
- Your state guaranty association will be able to explain the limits of their coverage for both insurance and annuity products.
- Evaluate Your Insurer’s Financial Strength
- State guaranty association coverage is only needed if your insurer becomes insolvent. Four companies A.M. Best; Fitch; Moody’s; and Standard & Poor’s rate insurance companies for financial stability and user response. Each company rates along different axes, so check several of them to be sure your chosen provider is financially secure before you buy an annuity.
Frequently Asked Questions About State Guaranty Associations
Editor Malori Malone contributed to this article.
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6 Cited Research Articles
- Retrieved from https://content.naic.org/cipr-topics/guaranty-associationsfunds
- Insurance Information Institute. (2023). How to assess the financial strength of an insurance company. Retrieved from https://www.iii.org/article/how-to-assess-the-financial-strength-of-an-insurance-company
- National Organization of Life & Health Insurance Guaranty Associations. (2022, November 28). Advertising Prohibition - State Comparison Report. Retrieved from https://www.nolhga.com/factsandfigures/main.cfm/location/lawdetail/docid/18
- National Organization of Life & Health Insurance Guaranty Associations. (2022). The Nation’s Safety Net. Retrieved from https://www.nolhga.com/resource/code/file.cfm?ID=2515
- American Council of Life Insurers. (2010, June) Insurance Guaranty Associations: Frequently Asked Questions. Retrieved from https://www.acli.com/-/media/ACLI/Public/Files/PDFs-PUBLIC-SITE/Public-Public-Policy/guarantee-associations-FAQ.ashx
- National Organization of Life & Health Insurance Guaranty Associations. (n.d.). Frequently Asked Questions. Retrieved from https://www.nolhga.com/policyholderinfo/main.cfm/location/questions
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