The main benefit of purchasing life insurance is the priceless peace of mind it offers to you and your loved ones. But what happens if your life insurance carrier experiences financial instability, compromising that sense of security?
If your life insurance company goes bankrupt, it can be stressful and jarring, but shouldn’t cause you to panic. Because life insurance companies are heavily regulated, there are many protective measures put in place to safeguard policyholders in the event a carrier goes out of business. In this article, we’ll help you understand the protections policyholders have when their life insurance company goes bankrupt, as well as how to evaluate a carrier for its financial strength before committing to purchasing a policy with them.
What protections do policyholders have if their life insurance company goes bankrupt?
If your life insurance carrier goes bankrupt, there are measures in place to protect your policy and ensure your loved ones still have the coverage they need. Some of the common protections policyholders have in the event of carrier bankruptcy include:
State Guaranty Associations: Each state has a guaranty association that provides a safety net for policyholders in the event of an insurer's bankruptcy. These associations are funded by assessments on insurance companies and are designed to cover policyholders' claims. Policyholders are generally protected up to certain limits for death benefits and cash values, but this coverage limit varies by state and policy type.
Transfer of Policies: In the event of bankruptcy, another insurance company may acquire the policies of the bankrupt insurer. Policyholders' coverage and benefits would then be transferred to the acquiring company.
Regulatory Oversight: State insurance departments oversee the solvency of insurance companies and take regulatory actions to protect policyholders. This oversight includes monitoring the financial condition of insurers and intervening in cases of financial instability.
How to Choose a Financially Strong Life Insurance Carrier
Life insurance company ratings are a great way to evaluate the financial strength of a carrier before you commit to purchasing a policy with them. These ratings are based on criteria like customer satisfaction, financial strength, and cost. There are several major rating agencies, and each has its own system for assigning ratings. These agencies include:
Additional resources to help you understand insurance company ratings can usually be found on your state’s government website or through your state’s insurance commissioner.
SelectQuote Can Help You Find a Trusted Life Insurance Carrier
Working with a financially strong life insurance carrier can offer security and peace of mind when choosing a policy. SelectQuote partners with a variety of trusted, highly rated life insurance carriers to ensure you feel confident when selecting your coverage. We’ll take the guesswork out of choosing a carrier off your hands by gathering and comparing life insurance quotes on your behalf, helping you navigate your options so you can make informed decisions about your coverage.
