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Does a guaranty fund pay all claims of an insolvent insurer?

No. The state insurance guaranty funds are designed as a safety net to pay certain claims arising out of policies issued by licensed insurance companies. They do not pay non-policy claims or claims of self-insured groups, or other entities that are exempt from participation in the guaranty fund system.

In addition, some lines of business are excluded from guaranty fund coverage, such as surety bonds, warranty coverage and credit insurance. (Life and health claims and annuity claims are covered by the life and health guaranty funds, not the property and casualty system.)

Guaranty fund coverage is limited to licensed insurers (the members of the guaranty funds that, in turn, pay insolvency-related assessments.) When a licensed insurance company becomes insolvent, the guaranty funds pay eligible claims; but a company does not have guaranty fund coverage if it is writing non-admitted or unlicensed products, such as surplus lines or is a self-insurer covered in the non-admitted market.

These limits on guaranty fund coverage are necessary to balance the need to provide a safety net to those who would be most harmed by the insolvency of their insurance company and keep the burden of providing the safety net at an acceptable level.
 



faq | by Dr. Radut