by Guest » Mon Feb 01, 2010 12:42 pm
I had applied for a life policy with a new agent. I'm scared as to how I'd stand if this carrier ever goes bankrupt. Has it ever happened in the past? what do I do? I was thinking of getting another policy as a back-up plan.
Posted: Mon Feb 01, 2010 09:39 pm Post Subject:
What carrier? Most states have some sort of guaranty fund that insurers are required to pay into in the event that a carrier becomes insolvent and nobody buys the block of business. As far as I know, there has never been a death claim that was not paid due to carrier insolvency, though I could be wrong. Another company will usually take over and are obligated to fulfill the existing contracts.
Posted: Mon Feb 01, 2010 10:36 pm Post Subject:
Your state's specific guaranty fund will cover death benefit to a certain level, you should check, or can tell us what state and we can tell you.
If your death benefit falls below the state covered amount, there's little to worry about, it's backed by the guaranty corp, which will pay the claim if your insurer cannot.
If you are above, most insurance bankruptcies are handled by the state coming in and using different large insurance companies to handle the current business held by the failed insurer.
What has you worried about your current insurer? The best number to look at with respect to this issue is capitalization ratio. It represents the amount of money the insurance company has in access of it's liabilities with respect to it's overall assets. The higher this number, the more "room" there is for the insurer to loose in assets before failing to make good on it's promises.
Posted: Mon Feb 01, 2010 10:41 pm Post Subject:
As far as I know, there has never been a death claim that was not paid due to carrier insolvency, though I could be wrong.
You are correct about this as it pertains to the U.S. Life insurance industry.
Why do insurance companies step in and pay the claims? Life insurance is nothing more than a promise. If people don't trust the promise, people don't buy coverage. As soon as claims don't get paid, the insurance industry as we know it is done.
Posted: Tue Feb 02, 2010 07:51 am Post Subject:
I'm a resident of Delaware. Will the state guarantee fund cover for at least 80% of my death benefit?
Posted: Tue Feb 02, 2010 12:29 pm Post Subject:
According, to this website, it is up to $300,000 per person, regardless of how much coverage you have in force. http://www.delifega.org/faq.cfm?id=105
Guaranty funds should not be relied upon for payment in the event of carrier insolvency though, they are merely a backstop....what company are you worried about?
Posted: Wed Feb 03, 2010 08:44 am Post Subject:
I'd once been advised to stay away from these Guarantee funds.
Guaranty funds should not be relied upon for payment in the event of carrier insolvency though, they are merely a backstop
Would you please explain the drawback of these funds?
Posted: Wed Feb 03, 2010 01:18 pm Post Subject:
What do you mean stay away from them? You can't do anything with them, they are just a fund that exists in case an insurer goes bankrupt and nobody takes over the block of business.
Posted: Wed Feb 03, 2010 06:57 pm Post Subject:
State Insurance Guaranty Associations exist to (hopefully) detect and prevent insurer insolvency. As well, they exist to pay claims arising from individual and group annuities, life and health insurance contracts that are issued by authorized insurers. Simply put, they are the insurance equivalent of the FDIC.
These associations are run by each individual state and all authorized insurers are required to be members of their respective associations. Each state has an association for both life and health and P&C policies.
They have nothing to do with the client's purchase, agent recommendations or anything else other than what's stated above, which only comes into play in the event of insolvency, liquidation or rehabilitation orders given by a state insurance commissioner.
InsTeacher 8)
Posted: Thu Feb 04, 2010 09:15 am Post Subject:
Someone had probably mentioned that the guaranteed funds won't compensate for our losses entirely. To me it seemed useless at that point of time!
Posted: Thu Feb 04, 2010 05:55 pm Post Subject:
These are known as "Guaranty Associations" and not "guaranteed funds." I would like to respond to this comment:
Someone had probably mentioned that the guaranteed funds won't compensate for our losses entirely. To me it seemed useless at that point of time!
The FDIC only guarantees funds up to a certain dollar amount as well. My point, I guess, is that something is always better then nothing. Would you rather receive nothing for a death benefit claim or $300,000? Without the Guaranty Associations, you wouldn't get a penny. You'd have to sue the insurer, and since they're probably under a liquidation, conservation or rehabilitation order, they'd be immune from prosecution at that point.
InsTeacher 8)
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